Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )
flows back into new assets and extend their lives. If we assumethatcashflows,beyondtheterminalyear,willgrow ataconstantrateforev ...
Partofthereason foritis thatsmallchangesin thestable growthratecanchangetheterminalvaluesignificantlyand the effect gets larger ...
an expectedinflationcomponent. If thevaluationis a real valuation,the stablegrowth rate willbe constrained to be lower. Again, u ...
risklessratethatgoesintothediscountrateandthegrowth rateoftheeconomy.Notethattherisklessratecanbewritten as: Inthelongterm,there ...
Equity Risk Whenlookingatthecostofequity,high-growthfirmstendto bemoreexposedtomarketrisk(andhavehigherbetas)than stable-growthf ...
whobelievethattheonlyassumptionconsistentwith stable growthistoassumenoexcessreturns;thereturnoncapitalis set equalto thecostof ...
reestimatetheratingandthecostofdebtforafirmasyou change its revenues and operating income. Onthepracticalquestionofwhatdebtratio ...
Ifweassume,forinstance,astablegrowthrateof 4 percent (basedonthegrowthrateoftheeconomy)forGoldmanSachs and a return on equity of ...
Finally,lookingatfreecashflowstothefirm,weestimated theexpectedgrowthinoperatingincomeasafunctionofthe return on capital and the ...
Substituting in thestable growth rate asa function of the reinvestment rate, from above, we get: Settingthereturnoncapitalequalt ...
Afteryear5,thegrowthrateisexpectedtodropto5%and thereturnoncapitalisexpectedtostayat20%.Theterminal value can be estimated as fo ...
Notethattheterminalvaluedecreasesby$16millionbutthe cashflowinyear 5 alsoincreasesby$16millionbecausethe reinvestmentrateattheen ...
dividends),theexpectedreturnonequity(whichdetermines theexpectedgrowthrate),andthebeta(whichaffectsthecost ofequity).InIllustrat ...
ToanalyzeToyotaina freecashflowtoequitymodel,we summarizeourinputs forhigh growthand stablegrowthin the following table: High Gr ...
High GrowthStable Growth Return on capital 20.49% 6.57% Reinvestment rate34.14% 51.93% Expected growth 7.00% 3.41% Beta 0.93 1.0 ...
threedistinctscenarios.Inthefirst,thefirmwillmaintainits high growth rate for a periodof time and thenbecome a stable-growthfirm ...
capitaldeclinedtomoresustainablelevels(say 12 percent) andthebetamovedtoward1.Bythesametoken,youcan haveanextraordinarygrowthper ...
analysisisalmostneverdone, withanalystssettling foran expectedvalueforeachvariable(revenuegrowth,operating margin, tax rate, etc ...
Scenario Analysis Inscenarioanalysis,weestimatecashflowsunderdifferent scenarios,rangingfromoptimistictopessimistic,andreport th ...
4.Reportingtheoutput.Thevalueofabusinessorassetwill varyacrossscenariosandtherearetwochoiceswhenitcomes topresentingtheoutputfro ...
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