Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )
negotiationsareprivate(betweenthedistressedfirm and the lenders). Weshouldupdatetheestimatedmarketvalueofdebt frequently,sincet ...
with substantial debt and a significant potential for bankruptcy,theoptionvalueofequitymaybeinexcessofthe discounted cash flow v ...
ILLUSTRATION 17.8: Valuing Equity as an Option Assumethatwearevaluingtheequityinafirmwhoseassets arecurrentlyvaluedat$100million ...
Sincethecall valuerepresentsthevalueof equityand the firm value is $100 million, the estimated value of the outstanding debt can ...
underlyingasset mayincrease abovethestrikepricein the remaining lifetime of the option, equity commands value becauseofthetimepr ...
Increasing Risk Can Increase Equity Value In traditional discounted cash flow valuation, higher risk almostalwaystranslatesintol ...
FIGURE17.3EquityValueandStandardDeviationinFirm Value Probability of Default and Default Spreads Oneofthemoreinterestingpiecesof ...
In addition, the interest rate from the debt allows us to estimate the appropriate default spread to charge on bonds. Youcanseet ...
Estimating the Value of Equity as an Option The examples we have used thus far to illustrate the application ofoptionpricingto v ...
4.Thevalueofthefirmandthevarianceinthatvaluecanbe estimated. Each ofthese assumptions ismade for a reason. First, by restricting ...
Since most firms do not fall into the neat framework developedhere(suchashavingonlyonezerocouponbond outstanding),wehavetomakeso ...
Implicitly, we are assuming that a potential buyer, in the event of liquidation, will pay this value. Wecanusethefourthapproachf ...
adeeplytroubledsteelcompanycanbeestimatedusingthe average variance in firm value of all traded steel companies. Maturity of the ...
thefirmwilltrulyhavetopayoutoverthelifeofthedebt, sincetherewillbecoupon paymentsandinterest payments during the period. 2.Atthe ...
−£611milliononrevenuesof£456million.Byanymeasure, it was a firm in financial trouble. Muchofthefinancingforthetunnelhadcomefromd ...
Capitalspending and depreciation willgrow3% a yearforthenextfiveyears.Notethatthenetcapital expenditureisnegativeforeachofthese ...
estimated the standard deviations in Eurotunnel stock and debt using the data over the previous years. Wealsoestimated acorrelat ...
operatingmargins,thetwomostcriticalvariablesdetermining equityvaluearethedurationofthedebtandthevariancein firmvalue.Anyactionth ...
equityvalue.Thefirstrelatestotheshiftingdebtloadatthese firms, as the terms of debt get renegotiated and debt sometimes becomes ...
5 Asanextremeexample,considerestimatingabetaforEnron attheendof2001.ThebetaestimatefromBloomberg,using two years of data, was 1. ...
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