Updated April 21, There are many reasons to have an up-to-date business valuation. For example: You may need to sell the business due to retirementhealthdivorceor for family reasons. You may need debt or equity financing for expansion or due to cash flow problems.
All right, so what's the right discount rate to use when we're valuing what idar uses essentially a fixed stream of liabilities. Should it be close to the risk free rate? You know that you can kind of get a measure of by looking at treasury yields, or should the discount rate you use for these define benefit plan promises, should it instead reflect the return that is expected based on investment practices on the asset side.
And kind of the key hint was to think about the capital asset pricing model and then, you know, taking a step back the whole reason we're going through this kind of pension plan liability valuation is just to get a sense of, do you have a good understanding of what appropriate discount rates are?
Do you understand the CAPM logic applied to valuation? Usually we think of valuing a stream of profits. Obviously imbedded in those profits are liabilities. So here, we're just valuing a stream of liabilities, which in this case happens to be these defined benefit promises, which are non-trivial costs for a lot of state governments as well as some firms.
FINM Corporate Valuation Course Description Corporate Valuation is a "capstone" finance course that draws on core corporate finance principles, theories and methods previously studied. Students will work in teams to valuean existing company, present their analysis and investment recommendation. The techniques. Apr 18, · Studying FINM Corporate Valuation at Australian National University? On StuDocu you find all the study guides, past exams and lecture notes for this course. Corporate Valuation is a “capstone” finance course that draws on core corporate finance principles, theories and methods previously studies. Students will work in teams to value an existing company, present their analysis and investment recommendation.
Particularly older firms that have been in existence, kind of prior to the 's, when defined contribution retirement accounts kind of started to come to the fore. So I think a good way to answer this question is just to look through a few examples and kind of get some insights from those to answer the question about how should you value this stream of liabilities.
So let's actually look at a couple examples here. The first is a, considering a hypothetical example for Google. So let's consider two scenarios for Google. That's expected growth rate, but there's a lot of uncertainty around that. That's just basically an average.
It could be higher, it could be lower. Depends what happens to the global economy, consumer demand, competition from rivals. You can put it in the books. If we go from scenario one to scenario two, what's going to happen to Google's stock price?
What's going to happen to Google's stock price when you go from scenario one to scenario two. When you go to scenario two, the discount rate for Google's future cash flows is going to plummet significantly, because it's beta has now become zero. So that's very valuable to investors right? That's kind of like providing a hedge, there's another asset that gives us stability.
It's called the riskfree, the risfree asset is beta zero, Google's beta would be zero in scenario two, the lowering of the discount rate, to basically the risk-free rate, the lowering of beta to zero means Google stock is going to be more highly valued, because now the discount rate that we used to apply to Google's future cash flows will be the risk-free rate.
So if you kind of agree with this example, when Google's profits are known for sure, their discount rate should fall, because they're beta goes to zero. Their discount rate falling to basically the risk free rate.
Treasuries, means their value should go up a lot. If you buy that explanation for Google, then why not apply that same logic to valuing the stream of the defined benefit cost? Their basically, essentially, kind of fixed.
They're tied to things that aren't sensitive to the state of the economy. How long has a worker worked for the firm? What was their final salary? This conversion factor like maybe two percent or whatever.
Those factors are known, so there's kind of not very sensitive to the market, would suggest you should use a very low discount rate to get them into a value in today's dollars.
You can also think of looking at fixed income securities and their price earnings ratio. So MayUS treasury bond year, kind of the reciprocal of the yield, you know price earnings ratio of So these treasury bonds are much more expensive than the market, okay, for a given level of cash flow, why is that?
Well the CAPM logic. Therefore the lower price, or a lower price earnings for the risky stocks, as opposed to the safe treasuries.
Another way to say that is if you want to get cash flows in the future for sure, It's costly to do so to get that guarantee. That's why defined benefit plan is valuable to the workers, because they're getting future benefits in retirement where they know that amount for sure.
The flip side of that is, it means it's costly for the firms that are offering them, because you can see the kind of equivalent asset to these fixed liabilities would be things like these treasury bonds that are giving you these fixed payments as asset, but these are fairly expensive assets right?
It's very important.Lecture 3 Building a Company Model Lecturer: Dr. Hua Deng ANU Research School of Finance, Actuarial Studies and Statistics FINM Corporate Valuation 2 Agenda for today’s lecture 1. Overview of company models and Assignment #1 2. Overview of the KGW valuation model 3.
General advice on structuring your company model 4. Estimating ROIC (Return On Invested Capital) caninariojana.com: Justinlieuazn. Here is the best resource for homework help with FINM Corporate Valuation at Australian National University.
Find FINM study guides, notes, and. Corporate Valuation is a “capstone” finance course that draws on core corporate finance principles, theories and methods previously studies.
Students will work in teams to value an existing company, present their analysis and investment recommendation. Apr 18, · Studying FINM Corporate Valuation at Australian National University?
On StuDocu you find all the study guides, past exams and lecture notes for this course. Jun 01, · FINM , Corporate Valuation Semester 2, Lecture 2 Building a Company Model Lecturer: Jozef Drienko ANU School of Finance, Actuarial Studies and Applied Statistics Agenda for today’s lecture 1.
Overview of building a company models and Assignment 1 2. Overview of the KGW valuation model 3. General advice on structuring your company. FINM Corporate Valuation. Week Topic of Lecture Required Reading Assessment.
1 Course overview Valuation in context: KGW Ch1, Ch2, Ch3 2 DCF Valuation KGW Ch8, Ch12, Ch14 3 Building a company model Reorganizing the financial statements: KGW Ch9 4 Forecasting and model integrity KGW Ch6, Ch10, Ch11 Quiz #1.