In this class, we started by tying up loose ends on terminal value, with the dangers of waiting too long to put your company into stable growth and the importance of long term excess returns in determining terminal value. We then looked at building a DCF model, and how your choices of which cash flows to discount, the discount rate to use and the growth rates/patterns for a business have to be tailored to the firms. In the second half of the class, we talked about the loose ends in valuation, i.e., all the things you do after you have discounted cash flows back at the discount rate and why they matter. We started with cash, the simplest and most direct of all assets to value, and talked about why investors may attach a premium or discount to the cash balance of a company, arguing that discounts reflect a lack of trust in management. I mentioned a paper that looks at how the market discriminates across companies, when it comes to valuing cash balances. We then moved on to cross holdings, and why they are difficult to incorporate into value, and some approximations that you can try, when valuing them. In the next session, after the break, we will continue with the loose ends discussion.
Start of the class test: www.stern.nyu.edu/~adamodar/p...
Slides: www.stern.nyu.edu/~adamodar/p...
Post class test: www.stern.nyu.edu/~adamodar/p...
Post class test solution: www.stern.nyu.edu/~adamodar/p...