Corporate valuation
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Advanced Business and Financial Management — CAIIB.
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Free sample — 8 of 66 rapid-fire Q&A cards.
What is corporate valuation?
Corporate valuation is the process of determining the economic worth of a business or company using various financial models and methodologies. It is essential for mergers, acquisitions, investment decisions, and regulatory compliance.
What is the Dividend Discount Model (DDM) used for in corporate valuation?
To value a stock based on expected future dividends discounted to present value.
Which approach to valuation estimates a company's worth based on the present value of its expected future cash flows?
The Discounted Cash Flow (DCF) approach estimates a company's worth by discounting projected future free cash flows at an appropriate cost of capital. It is considered an intrinsic valuation method.
What does 'free cash flow to equity' (FCFE) measure in valuation?
Cash available to equity shareholders after debt repayments and capital expenditures.
What does the term 'terminal value' represent in a DCF valuation?
Terminal value represents the present value of all cash flows beyond the explicit forecast period, typically assuming perpetual growth at a stable rate. It often constitutes a significant portion of total DCF value.
What is the 'replacement cost method' of corporate valuation?
Valuing a company based on the cost to recreate its assets from scratch.
What is the Weighted Average Cost of Capital (WACC) and why is it used in valuation?
WACC is the blended cost of a firm's equity and debt financing, weighted by their respective proportions in the capital structure. It serves as the discount rate in DCF valuation to reflect the overall risk of the firm.
What is the 'excess earnings method' used to value in corporate valuation?
It values intangible assets by separating earnings above a normal return on tangible assets.
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