Chapter 9 New Venture Valuate in Practice: The Investor’s Perspective Copyright¸ 2003 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. Instructors may make copies of the PowerPoint Presentations contained herein for classroom distribution only. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these
21
Embed
Chapter 9 New Venture Valuate in Practice: The Investor’s Perspective Copyright¸ 2003 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation.
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Chapter 9
New Venture Valuate in Practice: The Investor’s
Perspective
Copyright¸ 2003 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. Instructors may make copies of the PowerPoint Presentations contained herein for classroom distribution only. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.
Learning Objectives • How to use the CAPM to value an investment by either
the CEQ or RADR method.• How to use the First Chicago Method and the Venture
Capital Method of valuation.• Recognize the strengths and weaknesses of each
valuation approach.• Estimate project betas and required rates of return by
alternative methods.• Estimate correlation between project returns and market
returns, risk-free rate, and standard deviation of market returns.
• How to use multipliers to estimate the continuing value of a new venture.
• Recognize and use opportunities to take advantage of valuation short-cuts.
• Asset-based approaches– Book Value– Adjusted Book Value– Replacement Cost– Liquidation Value
• Market comparisons– Secondary-market financial claims on comparables– Primary-market transactions on comparables– Acquisition transactions
• Revenue, Earnings, and Cash Flow-based approaches– Capitalization of Revenues– Capitalization of Earnings– Discounted Cash Flow (VC Method, First Chicago
Method, Other)• The objective is always to value future cash flows
Implementing Valuation by the CEQ Form of the CAPM
• Information requirements:– Expected cash flows– Standard deviation of asset cash flows– Standard deviation of market– Correlation of cash flows with market– Risk-free rate
• Estimating the CEQ Model– Scenario analysis as a way to estimate cash flow beta– Standard deviation of market returns– Correlation between project cash flows and market
• Reality check• Caveat for valuing high-risk cash flows