Lecture 1

llnS3623
Applled CorporaLe llnance

LecLure 1 (ChapLers 6 & 9)
!ared SLaneld
March 3, 2014
ChapLer CuLllne
1. 8ond valuauon: 8efresher
2. SLock valuauon: ulvldend ulscounL
3. SLock valuauon: ayouL Model, lCl Model
4. SLock valuauon: Comparables
!"#$ &'()'*+"#
A refresher
uenluons
MaLurlLy: llnal 8epaymenL uaLe
1erm: 1lme remalnlng unul repaymenL
Coupon: romlsed lnLeresL paymenLs
lace value: nouonal amounL used Lo compuLe
lnLeresL aymenLs
Coupon 8aLe: ueLermlnes Lhe amounL of each
coupon paymenL, expressed as an A8
Coupon Rate Face Value

Number of Coupon Payments per Year
!
= CPN
Zero Coupon 8ond valuauon
Zero Coupon: Lasy-easy
CapLaln Cbvlous would llke Lo remlnd you LhaL
zero coupon bonds don'L have any coupons
Lxample: u.S. 1-8llls (<1 year)
Pow do we value?
Slmple v formula:

(1 )
=
+
n
n
FV
P
YTM
Coupon 8ond valuauon
1hese bonds have coupons!" yells CapLaln
Cbvlous
Lxample: CorporaLe, uS noLes and 8onds (>1
year), AusLrallan 8onds
Pow do we value?
1 1
1
(1 ) (1 )
! "
= # $ +
% &
+ +
' (
N N
FV
P CPN
y y y
1akeaways
8oLh of Lhese bond Lypes are sLandard plug-
n-chug" lf you have Lhe necessary lnpuLs.
l'll asslgn some problems lf anyone needs a
refresher on calculaung elLher of Lhese.
LeL's move on Lo some non-Lrlvlal uses of
Lhese models
Solvlng for ?leld Lo MaLurlLy
Solvlng for ?1M of a zero coupon ls sLralghuorward
Solvlng for ?1M of a coupon bond? noL so much.
Clven Lhere ls no closed-form" soluuon, we use
compuLers or calculaLors Lo calculaLe Lhls.
1
1
! "
= #
$ %
& '
n
n
FV
YTM
P

(1 )
=
+
n
n
FV
P
YTM
1 1
1
(1 ) (1 )
! "
= # $ +
% &
+ +
' (
N N
FV
P CPN
y y y
?1M
lmporLanL Lhlng Lo remember: ?1M ls lmplled
by bond prlces and noL Lhe oLher way around
So where do we geL bond prlces?
1erm SLrucLure of lnLeresL 8aLes
racucally, lnvesLors have expecLauons abouL
fuLure lnLeresL raLes, Lhese are facLored ln Lo bond
prlclng. An easy way Lo geL Lhe Lerm-sLrucLure ls
Lhrough zero-coupons
Calculaung Lhe 1erm SLrucLure
1he followlng are prlces (per $100 lace value) of uS Zero-
Coupon 8onds:
uslng:
We can Lhen use Lhese raLes Lo value a Lhree-year coupon
bond.
1hls ls where prlces come from, we calculaLe ?1M aer we have Lhe
prlce
MaLurlLy 1 year 2 year 3 year
rlce $98.04 $93.18 $91.31
1
1
! "
= #
$ %
& '
n
n
FV
YTM
P
lmplled 8aLe 2 2.3 3
llnal 8ond 1houghLs
We generally Lhlnk of uS Cov
bonds as rlsk-free"
8lsk of defaulL ls very low
lncorporaLe credlL rlsk Lhrough
ylelds, keep cash ows as promlsed
1he longer amounL of ume unul Lhe bond's maLurlLy
(longer durauon"), Lhe hlgher Lhe bond's lnLeresL
raLe rlsk. 1he shorLer, Lhe hlgher Lhe bond's
renanclng rlsk
,*"-. &'()'*+"#
ulvldend ulscounL Model
ulvldend ulscounL
1he prlce of any securlLy ls equal Lo Lhe presenL value of
Lhe expecLed fuLure cash-ows lL wlll pay.
WhaL are Lhe cash ows of a sLock?
ulvldends, so applylng Lhe above
1he prlce of any sLock ls equal Lo Lhe presenL value of Lhe
expecLed fuLure dlvldends lL wlll pay.
WhaL abouL a sLock LhaL currenLly doesn'L pay a
dlvldend? WhaL abouL a sLock LhaL wlll never pay money
Lo shareholders?
3 1 2
0
2 3
1
E E E E

1 (1 ) (1 ) (1 )
!
=
= + + + =
+ + + +
"
!
n
n
n
Div Div Div Div
P
r r r r
ConsLanL ulvldend CrowLh Model
(or CuCM Lo lLs frlends)
g" ls Lhe consLanL growLh raLe
nouce LhaL Lhe prlce equauon ls a growlng
perpeLulLy". ?ou'll wanL Lo become frlends wlLh Lhls
one.
1he value of Lhe rm depends on Lhe dlvldend nexL
year, Lhe cosL of equlLy, and Lhe growLh raLe.
1
0
E

=
!
Div
P
r g
CuCM roblem
A1&1 plans Lo pay $1.44 per share ln dlvldends ln Lhe
comlng year.
lLs equlLy cosL of caplLal ls 8 and dlvldends are expecLed
Lo grow by 4 per year ln Lhe fuLure

WhaL ls Lhe value of A1&1's sLock?
WhaL ls Lhe value of A1&1's sLock lf Lhey lnsLead
declded Lo delay Lhe rsL dlvldend unul 2 years from
now (assumlng Lhe growLh and lnlual dlvldend
amounL remaln Lhe same)?
Soluuons
1.

2.
1
0
E
$1.44
$36.00
.08 .04
= = =
! !
Div
P
r g
P
1
=
Div
2

r
E
! g
=
$1.44
.08 !.04
= $36.00
P
0
=
P
1
1+ r
E
=
$36.00
1.08
= $33.33
CrowLh
lf reLenuon raLe ls consLanL Lhan earnlngs growLh
equals dlvldend growLh
Change in Earnings New Investment Return on New Investment = !
New Investment Earnings Retention Rate = !
Change in Earnings
Earnings Growth Rate
Earnings
Retention Rate Return on New Investment
=
= !
Retention Rate Return on New Investment = ! g
WhaL lf growLh ls non-consLanL?
1he CuCM only works lf Lhe growLh raLe ls
consLanL.
lor a blg chunk of rms, Lhls ls noL Lhe case
(younger, hlgh growLh rms)
WhaL do we do?
We can model Lhe non-consLanL poruon of Lhe
growLh dlrecLly, Lhen use Lhe growlng
perpeLulLy once Lhe growLh levels ouL
non-consLanL ulvldend CrowLh
ulvldend-ulscounL Model wlLh ConsLanL Long-
1erm CrowLh (see example 9.3 ln Lhe LexL)
1
E

+
=
!
N
N
Div
P
r g
1 1 2
0
2
E E E E E
1

1 (1 ) (1 ) (1 )
+
! "
= + + + +
# $
+ + + + %
& '
!
N N
N N
Div Div Div Div
P
r r r r r g
LlmlLauons of Lhe ulvldend-ulscounL
Model
very large uncerLalnLy assoclaLed wlLh
forecasung a rm's fuLure dlvldends and
dlvldend growLh raLe.
Who knew Apple would sLarL paylng dlvldends
Lwo years ago?
Small changes ln Lhe assumed dlvldend
growLh raLe can lead Lo blg changes ln Lhe
esumaLed sLock prlce.
,*"-. &'()'*+"#
ayouL and lree Cash llow Models
1oLal ayouL Model
More rms are reLurnlng money Lo shareholders Lhrough
repurchases. lL makes sense Lo Lake Lhls lnLo accounL:
1oLal ayouL Model
values all of Lhe rms equlLy, raLher Lhan a slngle share. ?ou dlscounL
LoLal dlvldends and share repurchases and use Lhe growLh raLe of earnlngs
(raLher Lhan earnlngs per share) when forecasung Lhe growLh of Lhe
rms LoLal payouLs.
0
0
(Future Total Dividends and Repurchases)

Shares Outstanding
=
PV
PV
1he ulscounLed lree Cash llow Model
1he ulscounLed lree Cash llow Model focuses on Lhe cash
ows Lo all of Lhe rms lnvesLors, boLh debL and equlLy
holders.
Why mlghL valulng Lhe enLerprlse of Lhe rm be beneclal?
Enterprise Value Market Value of Equity Debt Cash = + !
valulng Lhe LnLerprlse
1o esumaLe a rms enLerprlse value, we
compuLe Lhe presenL value of Lhe rms free cash
ow avallable Lo pay all lnvesLors (boLh debL and
equlLy).
FreeCash Flow (1 Tax Rate) Depreciation
Capital Expenditures Increasesin Net WorkingCapital
EBIT = ! " +
" "
ulscounLed lree Cash llow Model
Clven Lhe enLerprlse value, Lhe value of equlLy
and dlvlde by Lhe LoLal number of shares
ouLsLandlng.
0 0 0
0
V Cash Debt
P
SharesOutstanding
+ !
=
0
(Future Free Cash Flow of Firm) = V PV
lmplemenung Lhe Model
Slnce we are dlscounung Lhe cash ows Lo all
lnvesLors, we use Lhe welghLed average cosL of
caplLal (WACC), denoLed by r
wacc
lorecasL free cash ow up Lo some horlzon,
LogeLher wlLh a Lermlnal value of Lhe enLerprlse:
1 2 N N
0
2 N N
V
V ...
1 (1 ) (1 ) (1 )
wacc wacc wacc wacc
FCF FCF FCF
r r r r
= + + + +
+ + + +
LsumaLe Lhe Lermlnal value by assumlng a
consLanL long-run growLh raLe g
lCl
for free
cash ows beyond year n.
1he long-run growLh raLe g
lCl
ls Lyplcally based on
expecLed long-run growLh raLe of revenues
N 1
N
FCF 1
V
FCF
N
wacc FCF wacc FCF
g
FCF
r g r g
+
! " +
= = #
$ %
& &
' (
valulng nlke, lnc., SLock uslng lree
Cash llow
?ou're a blg fan of MesuL Czll, Lhe 1urklsh-born playmaker LhaL plles hls
Lrade for Arsenal. ?ou [usL found ouL LhaL he slgned wlLh nlke and wanL Lo
supporL Lhe company by purchaslng some of Lhelr sLock. Slnce you had a
chance Lo Lake llnS3623, you gure lL mlghL be fun Lo do a uCl calculauon
Lo gure ouL how much you would be wllllng Lo buy a share of nlke sLock
for.
Cash llow
nlke had sales of $19.2 bllllon ln 2013 and you expecL lLs sales Lo grow aL a
raLe of 8 ln 2014, buL Lhen slow by 1 per year Lo Lhe long-run growLh
raLe LhaL ls characLerlsuc of Lhe apparel lndusLry-3-by 2017.
8ased on nlkes pasL proLablllLy an lnvesLmenL needs, you expecL:
L8l1 Lo be 9 of sales,
lncreases ln neL worklng caplLal requlremenLs Lo be 10 of any lncrease ln sales
caplLal expendlLures Lo equal depreclauon expenses.
lf nlke has:
$2.3 bllllon ln cash, $32 mllllon ln debL, 486 mllllon shares ouLsLandlng
a Lax raLe of 24
a welghLed average cosL of caplLal of 10
WhaL ls your esumaLe of Lhe value of nlkes sLock ln early 2014?
uslng lree Cash llow
1he spreadsheeL below presenLs a slmplled pro forma for nlke based on
Lhe lnformauon we have:
?ear 2013 2014 2013 2016 2017
/-/ /0123456 78 9:;;:0<=
Sales 19,200.0 20,736.0 22,187.3 23,318.8 24,694.7
!"#$%& ()"*+* ,"-#" .)/" 8.0 7.0 6.0 3.0
>!+* 7?@ 0A 54;25= 1,866.2 1,996.9 2,116.7 2,222.3
Less: lncome 1ax (24) 447.9 479.3 308.0 333.4
lus: uepreclauon - - - -
Less: CaplLal LxpendlLures - - - -
Less: lncrease ln nWC (10 of Asales) 133.6 143.2 133.1 117.6
/122 -45B /;0C 1,264.7 1,372.3 1,473.6 1,371.3
Cash llow
8ecause caplLal expendlLures are expecLed Lo equal
depreclauon, Lhese llnes ln Lhe spreadsheeL cancel ouL. We
can seL Lhem boLh Lo zero raLher Lhan expllclLly forecasL
Lhem.
Clven our assumpuon of consLanL 3 growLh ln free cash
ows aer 2016 and a welghLed average cosL of caplLal of
10, we can compuLe a Lermlnal enLerprlse value:
V
2016
=
FCF
2017
r
wacc
! g
FCF
!
"
#
$
%
&
=
1,571.5
0.10'0.05
!
"
#
$
%
&
= $31, 430million
Cash llow
nlkes currenL enLerprlse value ls Lhe presenL value of lLs free
cash ows plus Lhe rms Lermlnal value:
Lsumaung nlke's sLock value:
V
0
=
1, 264.7
1.10
+
1,372.5
1.10
2
+
1, 475.6
1.10
3
+
31, 430
1.10
3
= $27,006million
P
0
=
27,006+2,300!32
486
= $60.23
Cash llow
1he LoLal value of all of Lhe clalms, boLh debL and equlLy, on
Lhe rm musL equal Lhe LoLal presenL value of all cash ows
generaLed by Lhe rm, ln addluon Lo any cash lL currenLly has.
1he LoLal presenL value of all cash ows Lo be generaLed by
nlke ls 27,006 mllllon and lL has 2,300 mllllon ln cash.
SubLracung o Lhe value of Lhe debL clalms (32 mllllon),
leaves us wlLh Lhe LoLal value of Lhe equlLy clalms and dlvldlng
by Lhe number of shares produces Lhe value per share.
Connecuon Lo CaplLal 8udgeung
lree cash ow ls Lhe sum of Lhe free cash ows
from Lhe rms currenL and fuLure lnvesLmenLs,
so enLerprlse value ls Lhe sum of Lhe presenL value
of exlsung pro[ecLs and Lhe nv of fuLure new
ones.
nv of any lnvesLmenL represenLs lLs conLrlbuuon Lo
Lhe rms enLerprlse value.
1o maxlmlze share prlce, we should accepL pro[ecLs
LhaL have a posluve nv.
We musL forecasL all Lhe lnpuLs Lo free cash
ow.
1hls process glves us exlblllLy Lo lncorporaLe
many deLalls
Powever, some uncerLalnLy surrounds each
assumpuon
Clven Lhls facL, sensluvlLy analysls ls lmporLanL
1ranslaLes Lhe uncerLalnLy lnLo a range of values
for Lhe sLock.
SensluvlLy Analysls for SLock valuauon
nlkes L8l1 was assumed Lo be 9 of sales. lf nlke
managemenL belleves Lhere ls a chance LhaL operaung
expenses wlll lncrease because ln Lhe exclLemenL of slgnlng
Czll, everyone forgeLs Lo do acLual work, whlch would cause
L8l1 Lo be 8 of sales.
Pow would Lhe esumaLe of Lhe sLocks value change?
ln Lhls scenarlo, L8l1 wlll decrease by 1 of sales compared Lo
Lhe prevlous example. lnsLead of re-calculaung lCls we can
slmply calculaLe Lhe change ln lCl.
We can use Lhe Lax raLe (24) Lo compuLe Lhe eecL on Lhe
free cash ow for each year. Cnce we have Lhe new free cash
ows, we repeaL Lhe approach ln Lhe prevlous example Lo
arrlve aL a new sLock prlce.
ln year 2014, L8l1 wlll be 1 x $20,736.0 mllllon = $207.4 mllllon lower.
Aer Laxes, Lhls decllne wlll decrease Lhe rms free cash ow ln year 1 by
(1-0.24) x $207.4 mllllon = $137.6 mllllon, Lo $1,107.1 mllllon.
uolng Lhe same calculauon for each year, we geL Lhe followlng revlsed lCl
esumaLes:
Year 2014 2015 2016 2017
FCF 1,107.1 1,203.9 1,296.8 1,383.8
We can now reesumaLe Lhe sLock prlce as ln Lhe prevlous
example.

1hls ls a dlerence of abouL -11 compared Lo Lhe resulL
found ln Lhe prevlous example
V
0
=
1,107.1
1.10
+
1, 203.8
1.10
2
+
1, 296.8
1.10
3
+
27,676
1.10
3
= $23,769million
V
2016
=
FCF
2017
r
wacc
! g
FCF
!
"
#
$
%
&
=
1,383.8
0.10'0.05
!
"
#
$
%
&
= $27,676million
P
0
=
23,769+2,300!32
486
= $53.57
A Comparlson of ulscounLed Cash llow
Models of SLock valuauon
,*"-. &'()'*+"#
Comparables
valuauon 8ased on Comparable llrms
AnoLher appllcauon of Lhe valuauon prlnclple
ls Lhe meLhod of comparables (comps).
LsumaLe Lhe value of Lhe rm based on Lhe value
of oLher, comparable rms or lnvesLmenLs LhaL we
expecL wlll generaLe very slmllar cash ows ln Lhe
fuLure.
Conslder Lhe case of a new rm LhaL ls
ldenucal Lo an exlsung publlcly Lraded rm.
1he valuauon rlnclple lmplles LhaL Lwo securlues
wlLh ldenucal cash ows musL have Lhe same
prlce.
lf Lhese rms wlll generaLe ldenucal cash ows,
we can use Lhe markeL value of Lhe exlsung
company Lo deLermlne Lhe value of Lhe new rm.
We can ad[usL for scale dlerences uslng valuauon
muluples.
valuauon Muluples
A rauo of a rms value Lo some measure of Lhe
rms scale or cash ow.
rlce-Larnlngs rauo
LnLerprlse value Muluples
CLher muluples
Muluples of sales
rlce-Lo-book value of equlLy
lndusLry- speclc rauos
rlce-Larnlngs 8auo
MosL common valuauon muluple
usually lncluded ln baslc sLausucs compuLed for a sLock
Share prlce dlvlded by earnlngs per share
SLock rlce
CuoLe for
nlke (nkL)
valuauon uslng Lhe rlce-Larnlngs
8auo
Suppose l8M has earnlngs per share of $13.17.
Suppose Lhe average /L of comparable compuLer
hardware sLocks ls 23.2,
LsumaLe a value for l8Ms sLock uslng Lhe /L as a
valuauon muluple.
WhaL are Lhe assumpuons underlylng Lhls esumaLe?
8auo
We can esumaLe a share prlce for l8M by muluplylng
lLs LS by Lhe /L of comparable rms:

EPS!P / E = Earnings per Share !(Price per Share Earnings per Share)
=Price per share
8auo

0
=$13.17 23.2 = $303.34.
1hls esumaLe assumes LhaL l8M wlll have slmllar
fuLure rlsk, payouL raLes, and growLh raLes Lo
comparable rms ln Lhe lndusLry.
AlLhough valuauon muluples are slmple Lo use, Lhey
rely on some very sLrong assumpuons abouL Lhe
slmllarlLy of Lhe comparable rms Lo Lhe rm you are
valulng.
lLs lmporLanL Lo see how well Lhese work ouL on a case-by-
case basls
We can compuLe a rms /L rauo uslng:
1ralllng earnlngs
lorward earnlngs
1he resulung rauo ls elLher:
1ralllng /L
lorward /L
lor valuauon purposes, Lhe forward /L ls generally
preferred, as we are mosL concerned abouL fuLure
earnlngs. Why?
/L rauos are relaLed Lo oLher valuauon
Lechnlques.
ln Lhe case of consLanL dlvldend growLh we had

ulvldlng Lhrough by LS
1
:
1
0
E
Div
P
r - g
=
0 1
E E
/ DividendPayout Rate
ForwardP / E
1
1
P Div EPS
EPS r - g r - g
= = =
8elaung Lhe /L 8auo Lo LxpecLed
luLure CrowLh
CrowLh rospecLs and Lhe rlce-
Larnlngs 8auo
Apple and Mlcroso are boLh soware
(and hardware) compeuLors. As of
March 2012, Apple had a prlce of
$343.18 and forward earnlngs per share
of $33.11. Mlcroso had a prlce of
$32.08 and forward earnlngs of $2.76
per share.
CalculaLe Lhelr forward /L rauos and
explaln Lhe dlerence.
Larnlngs 8auo
lorward /L for Apple = $343.18/$33.11 = 13.33
lorward /L for Mlcroso's = $32.08/$2.76 = 11.62
ln March 2012, Apple's /L rauo was hlgher because
lnvesLors expecL lLs earnlngs Lo grow more Lhan
Mlcroso's.
Larnlngs 8auo
AlLhough boLh companles are reLallers, Lhey had very
dlerenL growLh prospecLs, as reecLed ln Lhelr /L
rauos.
lnvesLors ln Apple were wllllng Lo pay 13 umes Lhls
years expecLed earnlngs because Lhey are also
buylng Lhe presenL value of hlgh fuLure earnlngs
creaLed by expecLed growLh.
Apples currenL (as of a couple days ago) lorward /L
ls 11.19 whlle Mlcroso's ls 12.88. WhaL does Lhls
mean ln Lerms of Lhe growLh prospecLs of boLh
companles?
LnLerprlse value Muluples
/L rauo relaLes excluslvely Lo equlLy, lgnorlng Lhe
eecL of debL.
WhaL does Lhls mean you are eecuvely assumlng?
LnLerprlse value muluples use a measure of
earnlngs before lnLeresL paymenLs are made
L8l1
L8l1uA
lree cash ow
8ecause caplLal expendlLures can vary beLween years, lLs mosL
common ls Lo use enLerprlse value Lo L8l1uA muluples
When expecLed free cash ow growLh ls
consLanL, we can wrlLe Lv Lo L8l1uA as:
1
0
1 1
/
1 1 wacc FCF
wacc FCF
FCF
V FCF EBITDA r g
EBITDA EBITDA r g
!
= =
!
valuauon uslng Lhe LnLerprlse value
Muluple
Cu8 lndusLrles ls a manufacLurer and dlsLrlbuLer of
nlLrogen and phosphaLe ferullzer producLs.
lL has an L8l1uA of $2,893 mllllon, cash of $1,207
mllllon, debL of $1,617 mllllon, and 63 mllllon shares
ouLsLandlng.
1he ferullzer lndusLry as a whole has an average
Lv/L8l1uA rauo of 4.8.
WhaL ls one esumaLe of Cu8's enLerprlse value?
WhaL ls a correspondlng esumaLe of lLs sLock prlce?
Muluple
Cu8's enLerprlse value ls $2,893 mllllon 4.8 = $13,896
mllllon
nexL, subLracL Lhe debL from lLs enLerprlse value and add ln
lLs cash:
$13,896 mllllon - $1,617 mllllon + $1,207 mllllon = $13,486
mllllon, whlch ls Lhe equlLy value.
lLs sLock prlce ls equal Lo lLs equlLy value dlvlded by Lhe
number of shares ouLsLandlng:
$13,486 mllllon - 63 mllllon = $207.48
Muluple
lf we assume LhaL Cu8 lndusLrles should be valued
slmllarly Lo Lhe resL of Lhe lndusLry, Lhen $207.48 ls a
reasonable esumaLe of lLs sLock prlce.
Powever, we are relylng on Lhe assumpuon LhaL Cu8
lndusLrles' expecLed free cash ow growLh ls slmllar
Lo Lhe lndusLry average.
lf LhaL assumpuon ls wrong, so ls our valuauon.
CLher muluples
Muluples of sales can be useful lf lL ls reasonable
Lo assume marglns are slmllar ln Lhe fuLure.
rlce-Lo-book value of equlLy can be used for rms
wlLh subsLanual Langlble asseLs.
Some muluples are speclc Lo an lndusLry
e.g. Cable 1v LnLerprlse value per subscrlber
LlmlLauons of Muluples
llrms are noL ldenucal
usefulness of a valuauon muluple wlll depend on Lhe
naLure of Lhe dlerences and Lhe sensluvlLy of Lhe
muluples Lo Lhe dlerences.
ulerences ln muluples can be relaLed Lo dlerences ln
LxpecLed fuLure growLh raLe
8lsk (cosL of caplLal)
ulerences ln accounung convenuons beLween counLrles
LlmlLauons of Muluples
Comparables provlde only lnformauon regardlng
Lhe value of Lhe rm relauve Lo oLher rms ln Lhe
comparlson seL
CannoL help deLermlne wheLher an enure lndusLry ls
overvalued.
lnLerneL boom example
Comparlson wlLh ulscounLed Cash llow
MeLhods
valuauon muluple does noL Lake lnLo accounL
maLerlal dlerences beLween rms.
1alenLed managers
More eclenL manufacLurlng processes
aLenLs on new Lechnology
Comparlson wlLh ulscounLed Cash llow
MeLhods
ulscounLed cash ow meLhods allow us Lo
lncorporaLe speclc lnformauon abouL cosL of
caplLal or fuLure growLh
oLenual Lo be more accuraLe
SLock valuauon 1echnlques: 1he llnal Word
no slngle Lechnlque provldes a nal answer
regardlng a sLocks Lrue value
racuuoners use a comblnauon of Lhese
approaches
Condence comes from conslsLenL resulLs from a
varleLy of Lhese meLhods
Lxample of oLenual 8ange of valuauons for nlke SLock
uslng varlous valuauon MeLhods
nexL 1lme
Pomework:
ChapLer 6: 23, also browse Lhrough Lhe earller
problems (1-7) and see lf you need a refresher.
ChapLer 9: 6-8, 11-12, 13-16, 19, 21, 27-28
8evlew ChapLer 2 (lf you undersLand Lhe rauos
you can sklm lL)
8ead ChapLer 19, Secuons 1-3, and Lhe
Conunuauon value" poruons of Secuon 3

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