Valuation
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Valuation. FIN 449 Michael Dimond. Valuation – The Big Picture. Start from the bottom. For now, put the FCFE figures on row 250, as shown Add the appropriate labels and supporting data, then build cells to compute discounted values Complete the valuation details Sum of PVs Cash

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Valuation

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Valuation

Valuation

FIN 449Michael Dimond


Valuation the big picture

Valuation – The Big Picture


Valuation

Start from the bottom

  • For now, put the FCFE figures on row 250, as shown

  • Add the appropriate labels and supporting data, then build cells to compute discounted values

  • Complete the valuation details

    • Sum of PVs

    • Cash

    • Total value, per share value, market price, etc.


Valuation

Create an area for sensitivity analysis

  • The top row references the terminal growth rate in your valuation, with an incremental change on either side.

  • The Ke figures are driven by the Rf and MRP shown, but β is replaced with the “New β” in column E. Again, this is driven with some incremental change.


Valuation

How the sensitivity analysis works

  • Each cell references the FCFE figures and discounts them, then adds the cash to the total, then divides by the number of shares.

  • Use absolute references (such as $H$253) so you can fill the formula into the entire table.

The yellow cell in the middle has this formula inside:

=($H$253+$I$250/(1+$F266)^$I$249+$J$250/(1+$F266)^$J$249+$K$250/(1+$F266)^$K$249+$L$250/(1+$F266)^$L$249+ $M$250/(1+$F266)^$M$249+($M$250*(1+J$261)/($F266-J$261))/(1+$F266)^$M$249)/$H$255


The formula is not as daunting as it seems

The formula is not as daunting as it seems

  • The formula in the yellow cell is easier to build with point & click than with typing…

    =(

    $H$253

    +$I$250/(1+$F266)^$I$249

    +$J$250/(1+$F266)^$J$249

    +$K$250/(1+$F266)^$K$249

    +$L$250/(1+$F266)^$L$249

    +$M$250/(1+$F266)^$M$249

    +($M$250*(1+J$261)/($F266-J$261))/(1+$F266)^$M$249

    )

    /$H$255

Open parentheses to group the total value

Cash

FCFE1 discounted for 1 period

FCFE2 discounted for 2 periods

FCFE3 discounted for 3 periods

FCFE4 discounted for 4 periods

FCFE5 discounted for 5 periods

Terminal value

discounted for

5 periods

Close the parentheses to group the total value

All of that divided by the number of shares


Valuation

Fill the formula into the cells in the table

Your result should give the same values as the example above.


Valuation

Good work! Now save your changes…

The next step is to build the area which drives our FCFE & FCFF figures. This will be placed above the area you just built.


Label the rows which will detail fcff fcfe

Label the rows which will detail FCFF & FCFE

  • I used rows 190 – 240 for the details. Starting from the top of this section, my labels are as shown:


Valuation the big picture1

Valuation – The Big Picture


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