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    Valuation: Projects: Aswath Damodaran

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    Laxmi Priya
    This document outlines a semester-long valuation project. It will be done in groups, with each student valuing one company. There are six steps to complete the valuation: 1) Pick companies from different industries and situations; 2) Intrinsic DCF valuation; 3) Comparable company valuation; 4) Market regression valuation; 5) Option model valuation if high leverage; 6) Final value estimate and recommendation after reconciling different models. Initial DCF valuations are due mid-semester and the full project report is due at the end.

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    Valuation: Projects: Aswath Damodaran

    Uploaded by

    Laxmi Priya
    51 views10 pages
    This document outlines a semester-long valuation project. It will be done in groups, with each student valuing one company. There are six steps to complete the valuation: 1) Pick companies from different industries and situations; 2) Intrinsic DCF valuation; 3) Comparable company valuation; 4) Market regression valuation; 5) Option model valuation if high leverage; 6) Final value estimate and recommendation after reconciling different models. Initial DCF valuations are due mid-semester and the full project report is due at the end.

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    Valuation Report

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    This document outlines a semester-long valuation project. It will be done in groups, with each student valuing one company. There are six steps to complete the valuation: 1) Pick companies from different industries and situations; 2) Intrinsic DCF valuation; 3) Comparable company valuation; 4) Market regression valuation; 5) Option model valuation if high leverage; 6) Final value estimate and recommendation after reconciling different models. Initial DCF valuations are due mid-semester and the full project report is due at the end.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    51 views10 pages

    Valuation: Projects: Aswath Damodaran

    Uploaded by

    Laxmi Priya
    This document outlines a semester-long valuation project. It will be done in groups, with each student valuing one company. There are six steps to complete the valuation: 1) Pick companies from different industries and situations; 2) Intrinsic DCF valuation; 3) Comparable company valuation; 4) Market regression valuation; 5) Option model valuation if high leverage; 6) Final value estimate and recommendation after reconciling different models. Initial DCF valuations are due mid-semester and the full project report is due at the end.

    Copyright:

    © All Rights Reserved
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    Download as pdf or txt
    of 10

    VALUATION:

    PROJECTS
    Aswath Damodaran
    1. OVERALL VALUATION PROJECT
    Runs the Entire Semester
    Due in Two Parts
    Project Description

    ¨ This project is designed to apply the valuation


    techniques we learn in class on companies in the real
    world.
    ¨ It is a group project, with each person in the group
    picking one company to value.
    ¨ The project analysis is due in two parts:
    ¤ The discounted cash flow valuations are due midway through
    the semester on October 30 at 5 pm. They will not be graded,
    but will be reviewed and returned with comments.
    ¤ The entire project report is due by 5 pm on the last day of class
    (December 14).

    3
    Step 1: Pick the companies

    ¨ Pick a group of companies (one for each person in the group),


    making sure you have at least
    1. one company which has negative earnings in the most recent financial
    period (year-to-date, if available or most recent financial year (if not)).
    2. one company which has high-growth potential (Look for companies
    whose revenues are expected to grow > 25% over the near future; the
    could be losing money, in which case you could kill two birds with one
    stone.)
    3. one non-U.S. company (Value the local listing not the ADR)
    4. one service company (retail firm, financial service firm ..)

    ¨ For high growth firms:


    ¨ http://www.stern.nyu.edu/~adamodar/New_Home_Page/eqass.htm
    ¨ For negative earnings firms:
    http://www.stern.nyu.edu/~adamodar/New_Home_Page/eqass.htm

    4
    Step 2: Intrinsic Valuation

    ¨ Develop your narrative for this company. (Give me your


    story of how you see your company evolving over time,
    given what you know about it, its market and the
    competition)
    ¨ Tie your narrative to key numbers that you will be using
    in your valuation.
    ¨ Value the stock in each company using a discounted cash
    flow model.
    ¨ Evaluate how sensitive your value estimates are to
    changes in your narrative.
    Parts 1 & 2 are due midway through the semester on
    November 4

    5
    Step 3: Value relative to comparables

    ¨ Prepare a list of “comparable” companies, using criteria


    that you think are appropriate
    ¨ Choose a multiple that you will use in comparing firms
    across the group. (You might have to try a number of
    multiples out before making this choice)
    ¨ Evaluate your company against the comparable firms
    using the multiple that you have chosen for your
    valuation.
    ¤ using simple techniques (do a qualitative analysis adjusting the
    average for comparable firms)
    ¤ using a sector regression (a regression across firm in your
    sector). You can download the data on comparable firms by
    going to

    6
    Step 4: Value relative to the market

    ¨ Using the latest regression posted for the market on


    my web site, and the multiple you chose in step 3,
    evaluate whether your firm is under or over valued.
    ¤ If you have a non-U.S. company which has an ADR listed on
    it, you can use the U.S. regression
    ¤ While I will not require it, I will be very impressed if you
    run a regression of the multiple in your foreign market (use
    the 50 largest firms, if you want to reduce your work load)
    against the variables that determine that multiple.

    7
    Step 5: Using Option Pricing Models

    ¨ If your negative earnings firm has high financial


    leverage (debt to capital ratio that exceeds 50%, in
    market value terms), value it using the option pricing
    model.
    ¨ If it does not, do not use the option pricing model.

    8
    Step 6: Final Value Estimate and
    Recommendation

    ¨ Before you make your recommendation, check


    whether anything that has happened during the
    period of your analysis has changed your narrative
    and your valuation.
    ¨ Consider the values you have obtained from the
    discounted cash flow, relative and option valuation
    models.
    ¤ How would you reconcile the different estimates of value?
    ¤ Make a final recommendation on the stocks in your group.

    9
    2. MYSTERY PROJECT
    Topic: TBA
    Due: Session TBA (sometime between the 10th and 12th weeks of the class)

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