Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )
valueofthecashandmarketablesecuritiestoittoarriveat firm value. CanthisbedonewiththeFCFEvaluationmodelsdescribed in theearlierch ...
Including cashin the picture (whichwe almost always do withreturnonequityandsometimeswithreturnoncapital) just muddies the water ...
The equity is worth $1,400 million. Now,letustrytovaluethemseparately,beginningwiththe noncash investments. To this, wecan add t ...
Ifwediscountthecashat10%,wewouldvaluethecashat $90 million instead of the correct value of $200 million—hence the loss in value ...
andcasharethesame.Inthegrossdebtapproach,we addthecashbalancebacktotheoperatingassetsand thensubtractthegrossdebt.Inthenetdebtap ...
FIGURE 10.4 Gross Debt versus Net Debt Approaches—Implicit Assumptions ($ millions) ILLUSTRATION10.2:ValuingaLeveredFirmwithCash ...
Net Debt Valuation ...
Reconciling the Two Approaches Inthespecificcasethatweexamined,thevalueofequityis lowerusingthenetdebtratioapproachthanwiththegr ...
Therearetwofactorscausingtheequityvaluedifference.The firstisthatweusedthesamecostofdebtusedunderthetwo approaches forcomputing ...
Ifweusethesedifferentpretaxcostsofdebtincomputingthe operating costof capital,thevaluesof equityareidentical usingboth thegrossd ...
bediscountedinvalue;inotherwords,adollarincashmay be valued at less than a dollar by the market. 21 1.Thecashheldbyafirmisinvest ...
Thevalueofcashthatisinvestedatalowerrateis$133.33 million. In this scenario, if the cash is returned to stockholders,itwouldyiel ...
30%thatthemanagement willtryto acquire anotherfirm. Further,assumethatthemarketanticipatesthatthefirmwill overpayby$50millionont ...
level,italsohappenswhenwefailtoadjustthecostofdebtin the gross debt and net debt approaches to reflect our assumptions about how ...
Unlevered beta Shouldbetheweighted average of the unlevered beta of operatingassetsandthe betaof cash(generally zero). Weights s ...
riskonthetwoinvestmentswillmaketheprice-earningsratio a function of the size of the cash balance. To see why, considerafirmwith$ ...
Whatrelevancedoesthishaveforrelativevaluation?Inmost relativevaluations,analystscomparetheprice-earningsratios of firms in a sec ...
Inthiscase,cashtradesatalowerprice-to-bookratiothanthe operatingassetsdo,andthepresenceofcashwillpushdown theprice-to-bookratiof ...
The cash balance that is netted out against firm value usuallyisfromthemostrecentfinancialstatements.Tothe extentthattherearese ...
willreportahighercashbalancebutitwillalsoreportmore debt outstanding. Thefinalcaveatthatweshouldaddrelatestodivestituresof porti ...
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