FINA 410 Study Guide - Midterm Guide: Discount Window, Models 1, Market Risk
15 Dec 2016
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Discounted cashflow (dcf) valuation 1 of 3 ways to approach valuation: risk ladder, philosophical basis intrinsic value, market inefficiency market is wrong (but error correction over time) Categorizing dcf - info needed (3: discount rate. Equity valuation equity stake (r = cost of capital) Firm valuation the whole business (r = wacc) Adjusted pv (apv) valuation value in pieces (equite+pvtx+expbc: cash flows equivalent approaches. Excess cf models not earning creating value, but excess earning. Applications of dcf works best when: positive cf. Investors with long term horizon error correction of market inefficiency. Relative valuation: philosophical basis: no intrinsic value estimation, value = wtv market pays for. Variable to control differences of not perfectly comparable assets: market efficiency market is right (but error correction over time) Fundamentals equivalent to dcf (same result) Advantage: show relation btw multiples and firm characteristics. Comparable compared to similar firms priced on the market: comparison multiple value. Cross sectional using comparable firms within same industry.
