文档介绍：Valuation
Aswath Damodaran
Aswath Damodaran 188
First Principles
Invest in projects that yield a return greater than the minimum
acceptable hurdle rate .
• The hurdle rate should be higher for riskier projects and reflect the
financing mix used - owners ’ funds (equity) or borrowed money (debt)
• Returns on projects should be measured based on cash flows generated
and the timing of these cash flows; they should also consider both positive
and negative side effects of these projects.
Choose a financing mix that minimizes the hurdle rate and matches the
assets being financed.
If there are not enough investments that earn the hurdle rate, return the
cash to stockholders.
• The form of returns - dividends and stock buybacks - will depend upon
the stockholders ’ characteristics.
Objective: Maximize the Value of the Firm
Aswath Damodaran 189
Discounted Cashflow Valuation: Basis for
Approach
t = n
CFt
Value = ∑ t
t =1(1+ r)
• where,
• n = Life of the asset
• CFt = Cashflow in period t
• r = Discount rate reflecting the riskiness of the estimated cashflows
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Equity Valuation
The value of equity is obtained by discounting expected cashflows to equity,
., the residual cashflows after meeting all expenses, tax obligations and
interest and principal payments, at the cost of equity, ., the rate of return
required by equity investors in the firm.
t=n
CF to Equityt
Value of Equity = ∑ t
t=1 (1+ ke )
where,
CF to Equityt = Expected Cashflow to Equity in period t
ke = Cost of Equity
The dividend discount model is a specialized case of equity valuation, and the
value of a stock is the present value of expected future dividends.
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Firm Valuation
The value of the firm is obtained by discounting expected cashflows to
the firm, ., the residual cashflows after meeting all operating
expenses and taxes, but prior to debt payments, at the weighted