Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )
Thus,thecostofequityisthesumofthedividendyieldand thelong-termexpectedgrowthrateindividends(orearnings). Forastockwithadividendy ...
Estimation Approaches Aswithcostofequity,thereareanumberofdifferentwaysin whichwecanestimatethecostsofcapital.Inthissubsection, ...
usingtheunleveredcostofequityasthecostofcapitalwill yield an incorrect estimate of value. Implied Costs of Capital In the subsec ...
additiontothecostofequity,andtakingaweightedaverage ofthecosts.Inthissubsection,weconsiderfirstthecostsof theseothercomponentsan ...
theextentofitsfinancialobligations—includinginterestand principal payments. 44 Firms that generate high cash flows relative to t ...
Theratingsassigned bytheseagencies areletterratings.A rating of AAA from Standard & Poor’s and Aaa from Moody’s representsth ...
ratedon thebasisof default risk.Whenthere isno rating available to estimate the cost of debt, there are two alternatives: 1.Rece ...
Interest Coverage RatioRatingTypical Default Spread 9.50–12.50 AA 0.50 7.50–9.50 A+ 0.70 6.00–7.50 A 0.85 4.50–6.00 A– 1.00 4.00 ...
ratios,whichareweightedtogenerateaZ-Score.Theratios used and their relative weights are usually based on past historyon defaulte ...
If itis a smallfirmand the taxrate ishigher for higherincomebrackets,theaverage taxrate across allincomewillbelowerthanthetaxra ...
that firms can carry losses forward and can offset them againstprofitsinfutureperiods.Themostprudentassessment ofthetaxeffectsof ...
defaultspreadforA-ratedbondsis1%.Addingthis spreadontotherisk-freerateof4.50%atthetimeof theanalysisyieldsa pretaxcost ofdebtof ...
Cost of Preferred Stock Preferred stock shares some of the characteristics of debt—thepreferreddividendisprespecifiedatthetimeof ...
a hybridsecurity thatispublicly traded(and has amarket price)intodebtandequitycomponents.Inthecaseoftraded convertible bonds, th ...
Thestraightbondcomponentof$630istreatedasdebt,while theconversionoptionof$434istreatedasequity (1064− 630). Weights for Computin ...
There are some analysts who continue to use book value weights and justify them using three arguments, none of which are convinc ...
What Should Be Counted in Debt? Analystsareoftenfacedwithadifficultquestionofwhatto include in debt, given that debt can be shor ...
capital. If this is the hurdle rate we want our long-term investmentsto beat,wewanttherateto reflectthecost of long-termborrowin ...
Infact,thisprocesscanbeusedtoconvertanysetoffinancial commitments into debt. Whatwouldwenotcountindebt?Accountspayable,supplier ...
asequity.Evenifsomeoftheclassesofsharesare not traded,market valueshaveto be estimated for nontradedsharesandaddedtotheaggregate ...
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