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MOD 7:. Valuation Using Residual Enterprise Income. Lauren Walaszczyk. Quick Background. Headquarter: Tokyo, Japan IFRS Accounting Products (enterprise activities) New/Used Cars Motorcycles Boats Financial Services Brands Acura

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Mod 7

MOD 7:

Valuation Using Residual Enterprise Income

Lauren Walaszczyk


Quick background
Quick Background

  • Headquarter: Tokyo, Japan

  • IFRS Accounting

  • Products (enterprise activities)

    • New/Used Cars

    • Motorcycles

    • Boats

    • Financial Services

  • Brands

    • Acura

  • America generates the most revenue and manufactures the highest volume of cars


Cost of enterprise capital
Cost of Enterprise Capital

  • Risk of operations

  • WACC = [Rd * (Vd/Vent)] + [Req * (Veq/Vent)]

  • WACC assumption = 9.61%

  • Changed assumption from Mod 6 (8.8%)  Bloomberg turned out to be less reliable


Discounted cash flow
Discounted Cash Flow

  • Discount rate of 9.61% (WACC)

  • Same parsimonious assumptions


Residual enterprise income
Residual Enterprise Income

  • Discount Rate of 9.61%

  • Accounting based valuation

  • Negative REI  resources are not being used efficiently or resources are not generating enough profit

    • i.e. – Honda’s automobiles are not generating profit



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