The Corporate Valuation Model 445
12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07
g 5%
18.00 23.00 46.40 49.00 51.45
$16.24
10.84%
18.72
10.84% Vop(2006) 880.99
34.07
10.84%
616.16 10.84% 929.99
$615.27Vop(12/31/02)
51.45
0.10840.05
their market value. Therefore, MagnaVision’s total value on December 31, 2002, is
$615.27 $63.00 $678.27 million.
If the company’s total value on December 31, 2002, is $678.27 million, what is the
value of its common equity? First, the sum of notes payable and long-term debt is
$123 $124 $247 million, and these securities have the first claim on assets and
income. Accounts payable and accruals were netted out earlier when calculating
free cash flow, so they have been accounted for. However, the preferred stock has a
claim of $62 million, and it also ranks above the common. Therefore, the value left for
common stockholders is $678.27 $247 $62 $369.27 million.
Figure 12-2 is a bar chart that provides a breakdown of MagnaVision’s value. The
left bar shows the company’s total value as the sum of its nonoperating assets plus its
FIGURE 12-1 Process for Finding the Value of Operations for a
Nonconstant Growth Company
↑
↑
↑
↑
FIGURE 12-2 MagnaVision’s Value as of December 31, 2002
700
600
500
400
300
200
100
0
Dollars
(Millions)
Market Value
Added (MVA) =
$124
Preferred Stock =
$62
Preferred Stock =
$62
Nonoperating
Assets = $63
Book Value
of Equity =
$245
Market Value
of Equity =
$369
Debt = $247 Debt = $247
Value of
Operations =
$615
Market Value:
Sources
Market Value:
Claims
Book Value:
Claims
442 Corporate Valuation, Value-Based Management, and Corporate Governance
