FINA 410 Lecture Notes - Lecture 12: Cash Flow, Market Risk, Tacit Assumption
26 Jan 2017
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Chapter 12 closure in valuation: estimating terminal. Previous chapter we examined the determinants of expected growth rates: firms that reinvest a lot of their earning and earn high returns on those investement should be able to grow at high rates. This chapter focuses on for how long this is possible, as well as what happens after that & how the transition occurs. Two different ways of bringing closure to a valuation: 1) going concern approach fir(cid:373) deli(cid:448)ers cf"s i(cid:374) perpetuit(cid:455) We will look at firm size ( relative to target market), current growth rate & competitive advantage: 2) liquidation approach business is shut does and the assets are sold at some point in time. Firm will not last forever and have to be sold. We will consider how best to estimate its liquidation value and when we should use this approach instead of the going concern approach. We do (cid:374)ot esti(cid:373)ate our cf"s fore(cid:448)er.
