Corporate Valuation and Value-Based Management.ppt
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1、,CHAPTER 12Corporate Valuation and Value-Based Management,Corporate ValuationValue-Based ManagementCorporate Governance,Corporate Valuation: List the two types of assets that a company owns.,Assets-in-placeFinancial, or nonoperating, assets,Assets-in-Place,Assets-in-place are tangible, such as build
2、ings, machines, inventory.Usually they are expected to grow.They generate free cash flows.The PV of their expected future free cash flows, discounted at the WACC, is the value of operations.,Value of Operations,Nonoperating Assets,Marketable securitiesOwnership of non-controlling interest in another
3、 companyValue of nonoperating assets usually is very close to figure that is reported on balance sheets.,Total Corporate Value,Total corporate value is sum of:Value of operationsValue of nonoperating assets,Claims on Corporate Value,Debtholders have first claim.Preferred stockholders have the next c
4、laim.Any remaining value belongs to stockholders.,Applying the Corporate Valuation Model,Forecast the financial statements, as shown in Chapter 11.Calculate the projected free cash flows.Model can be applied to a company that does not pay dividends, a privately held company, or a division of a compa
5、ny, since FCF can be calculated for each of these situations.,Data for Valuation,FCF0 = $20 millionWACC = 10%g = 5%Marketable securities = $100 millionDebt = $200 millionPreferred stock = $50 millionBook value of equity = $210 million,Value of Operations: Constant Growth,Suppose FCF grows at constan
6、t rate g.,Constant Growth Formula,Notice that the term in parentheses is less than one and gets smaller as t gets larger. As t gets very large, term approaches zero.,Constant Growth Formula (Cont.),The summation can be replaced by a single formula:,Find Value of Operations,Value of Equity,Sources of
7、 Corporate ValueValue of operations = $420Value of non-operating assets = $100Claims on Corporate ValueValue of Debt = $200Value of Preferred Stock = $50Value of Equity = ?,Value of Equity,Total corporate value = VOp + Mkt. Sec. = $420 + $100 = $520 millionValue of equity = Total - Debt - Pref. = $5
8、20 - $200 - $50 = $270 million,Market Value Added (MVA),MVA = Total corporate value of firm minus total book value of firmTotal book value of firm = book value of equity + book value of debt + book value of preferred stockMVA = $520 - ($210 + $200 + $50) = $60 million,Breakdown of Corporate Value,Ex
9、pansion Plan: Nonconstant Growth,Finance expansion by borrowing $40 million and halting dividends.Projected free cash flows (FCF):Year 1 FCF = -$5 million.Year 2 FCF = $10 million.Year 3 FCF = $20 millionFCF grows at constant rate of 6% after year 3.,(More),The weighted average cost of capital, rc,
10、is 10%.The company has 10 million shares of stock.,Horizon Value,Free cash flows are forecast for three years in this example, so the forecast horizon is three years.Growth in free cash flows is not constant during the forecast,so we cant use the constant growth formula to find the value of operatio
11、ns at time 0.,Horizon Value (Cont.),Growth is constant after the horizon (3 years), so we can modify the constant growth formula to find the value of all free cash flows beyond the horizon, discounted back to the horizon.,Horizon Value Formula,Horizon value is also called terminal value, or continui
12、ng value.,Vop at 3,Find the value of operations by discounting the free cash flows at the cost of capital.,0,-4.545,8.264,15.026,398.197,1,2,3,4,rc=10%,416.942 = Vop,g = 6%,FCF= -5.0010.00 20.00 21.2,$21.2,.,.,$530.,10,0,06,0,Find the price per share of common stock.,Value of equity = Value of opera
13、tions - Value of debt = $416.94 - $40 = $376.94 million.Price per share = $376.94 /10 = $37.69.,Value-Based Management (VBM),VBM is the systematic application of the corporate valuation model to all corporate decisions and strategic initiatives.The objective of VBM is to increase Market Value Added
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