Principles of Private Firm Valuation
Valuation Models and Metrics 65 multiple to 1.51, and the value of Tentex to $4,806,582, compared to the initial estimate of $4, ...
66 PRINCIPLES OF PRIVATE FIRM VALUATION the multiple being used. If these projections are inconsistent with the target firm’s po ...
TABLE 4.7 Comparison of Free Cash Flow Valuation to the Method of Multiples Comparable Valuation Methods (F) Comparable (D) (E) ...
discounted cash flow method had a median error of 6 percent. This means that the median estimated transaction value was 6 percen ...
69 Estimating the Cost of Capital CHAPTER 5 I n addition to cash flow, firm value is also a function of the firm’s cost of capit ...
k=the cost of capital for each component of the capital structure T=the tax rate The WACC is used in conjunction with the discou ...
20 years to mature. The income return is defined as the portion of the total return that comes from the bond’s coupon payment. T ...
■ Adjust the industry beta for the size of the target firm. ■ Adjust the industry beta for the capital structure of the target f ...
While Ibbotson has estimated betas for many industries, the industry coverage is by no means complete. Most private firms operat ...
where kI=the return on a portfolio of firms operating in industry I km=the return on a broad market index (e.g., New York Stock ...
The regression results indicate that the coefficients are statistically sig- nificant. The explanatory power of the equation ind ...
portfolios, though higher than for large-company portfolios were, neverthe- less, not high enough to explain all of the excess r ...
77 TABLE 5.4 Beta Size Adjustment Ratio of Sumbeta to Size Factor: Size Beta Sum, Size × Size Size Beta Sum Size Beta Sales Size ...
This accounting identity implies that the firm’s asset beta is equal to the weighted average of the betas of the components of i ...
smaller when the sumbeta adjusted for size rather than simple size adjusted betas are used. Table 5.5 shows the differences in t ...
correction may still understate the cost of capital for smaller private firms. At the moment, however, this likely the best that ...
Estimating the Cost of Capital 81 TABLE 5.6 Factors That Determine Firm-Specific Risk Firm-Specific Risk Matrix Factor Weighted ...
return earned above the CAPM return was about 8 percent.^8 Cochrane stud- ied all venture investments in the VentureOne database ...
X 4 = X 5 = Table 5.7 shows the relationship between the firm’s debt rating and its Z score by maturity of debt. Using the Z sco ...
84 PRINCIPLES OF PRIVATE FIRM VALUATION TABLE 5.8 Tentex’s Balance Sheet Concepts Change: Row Assets 2003 2002 2003/2002 1 Cash ...
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