At theprevailing market priceof $57 in November 2005,
Target looks significantly overvalued.
ILLUSTRATION 6.4: Valuing SAP: Effects of R&D
SAPisaGermanfirmthatisamajorsupplierofenterprise
softwaretocorporations.Itsgrowthoverthepastdecadehas
madeitoneofEurope’slargesttechnologyfirms,andwewill
value it using the following assumptions:
- Thefirmreportedoperatingincomeof2,044million
eurosin 2004 andaneffectivetaxrateof36.54%for
the year. This operating income was after R&D
expensesof1,020millioneurosduringtheyear.To
capitalize R&Dexpenses, we assume that research
has a five-year amortizable life. SAP’s R&D
expensesoverthepastfiveyearsarereportedinthe
followingtable,withtheestimatedamortizationfor
thisyear(basedona five-yearlifeand straight-line
depreciation) and the unamortized portion left over.