Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )

(Hop HipldF0AV) #1

Thepresent valueof EVA over thehigh-growth period is
=C539.81million.Togettothevalueoftheoperatingassets
of the firm, we add two more components:


1.Thecapitalinvestedinassetsinplaceatthebeginningof
year 1 (current), which is = C946.90 million.


2.ThepresentvalueoftheEVAin perpetuityonassetsin
place in year 5, which is computed as follows:


Note that while the marginal return on capital on new
investmentsis equaltothecost ofcapitalafteryear6,the
existing investments continue to make 19.25%, which is
higherthanthecostofcapitalof6.57%,inperpetuity.The
totalvalue fortheoperating assetsisidenticalto thevalue
obtained using the cost of capital approach.


Cost of Capital versus Excess Return Valuation

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