chapter_7收购、兼并和重组课后题目

Primer on Cash Flow Valuation,The greater danger for most of us is not that our aim is too high and we might miss it, but that it is too low and we reach it.Michelangelo,Learning Objectives,Primary learning objectives: To provide students with an understanding of business valuation using discounted cash flow valuation techniques andthe importance of understanding assumptions underlying business valuationsSecondary learning objectives: To provide students with an understanding ofdiscount rates and risk as applied to business valuation;how to analyze risk;alternative definitions of cash flow and how and when they are applied; the advantages and disadvantages of the most commonly used discounted cash flow methodologies; the sensitivity of terminal values to changes in assumptions; andadjusting firm value for non-operating assets and liabilities.,Required Returns: Cost of Equity (ke),Capital Asset Pricing Model (adjusted for firm size):ke = Rf + (Rm Rf) + FSPWhere Rf = risk free rate of return = beta (systematic/non-diversifiable risk) Rm = expected rate of return on equities Rm Rf = 5.5% (i.e., equity risk premium historical average since 1963) FSP = firm size premium,Estimates of Size Premium,Market Value (000,000) $21,589 $7,150 to $21,589 $2,933 to $7,150 $1,556 to $2,933 $687 to $1,556 $111 to $687 WACCm) Pn = value of the firm at the end of year n (terminal value) gt = growth rate through year n gm = stabilized or long-term industry average growth rate beyond year n (Note: gt gm),Variable Growth Model Example,Estimate the value of a firm (P0) whose cash flow is projected to grow at a compound annual average rate of 35% for the next five years and then assume a more normal 5% annual growth rate. The current years cash flow is $4 million. The firms weighted average cost of capital during the high growth period is 18% and then drops to the industry average rate of 12% beyond the fifth year.,Variable Growth Model Example Solution,PV1-5 = $4 x 1.35 + $4 x (1.35)2 + $4 x (1.35)3 + (1.18) (1.18)2 (1.18)3 $4 x (1.35)4 + $4 x (1.35)5 (1.18)4 (1.18)5 = $30.5 PV5 = ($4 x (1.35)5 x 1.05) / (.12 - .05) = $117.65 (1.18)5P0 = PV1-5 + PV5 = $30.50 + $117.65 = $148.15,Solving Variable Growth Model Example Using A Growing Annuity,P0,FCFF = High Growth Period + Terminal Period (Growth Annuity) (Constant Growth Model) PV of FCFF Fraction of PV of Terminal Growing at x PV Growing + Period FCFF Constant Rate N PeriodsP0,FCFF = FCFF0(1 + g) x 1 (1 + g)/(1 + WACC)n + FCFFn x (1 + g)/(WACC - g) (WACC g) (1 + WACC)n = $4.00 (1.35) x 1 (1.35/1.18)5 + ($4.00 x 1.355 x 1.05/(.12 - .05) (.18 - .35) 1.185 = -.91.8 x -.96 + $117.65 = $30.50 + $117.65 = $148.15,Determining Growth Rates,Key premise: A firms value can be approximated by the sum of the high growth plus a stable growth period.Key risks: Sensitivity of terminal values to choice of assumptions about stable growth rate and discount rates used in both the terminal and annual cash flow periods.Stable growth rate: The firms growth rate that is expected to last forever. Generally equal to or less than the industry or overall economys growth rate. For multinational firms, the growth rate is the world economys rate of growth.Length of the high growth period: The greater the current growth rate of a firms cash flow relative to the stable growth rate, the longer the high growth period.,Choosing the Correct Tax Rate(Marginal or Effective),Effective rates are those a firm is actually paying after allowable deductions (e.g., investment tax credits) and deferrals (e.g., accelerated depreciation)Marginal tax rates are those paid on the last dollar of income earned Zero and Constant Growth Models: In calculating valuation cash flows, use marginal tax rates1 Variable Growth Model: In calculating valuation cash flows, Use effective rates to calculate annual cash flows when effective rates are less than marginal rates and Use marginal rates in calculating terminal period cash flows.11The use of effective tax rates during the terminal or an indefinite growth period implies the firm will defer the payment of taxes indefinitely.,Practice Exercise,Free cash flow to equity last year was $4 million. It grew by 20% in the current year; it is expected to grow at a 15% rate annually for the next five years, and then assume a more normal 4% growth rate thereafter. The firms cost of equity is 10% during the high growth period and then drops to 8% during the normal growth period. What is the present value of the firm to equity investors (equity value)? If the market value of the firms debt is $10 million, what is the present value of the firm (enterprise value)?,Adjusting Firm Value,Generally, the value of the firms equity is the sum of the present value of the firms operating assets and liabilities plus terminal value (i.e., enterprise value) less market value of firms long-term debt.However, value may be under or overstated if not adjusted for present value of non-operating assets and liabilities assumed by the acquirer. PVFCFE = PVFCFF (incl. terminal value) PVD + PVNOA PVNOL where PVFCFE = PV of free cash flow to equity investors PVFCFF = PV of free cash flow to the firm (i.e., enterprise value) PVD = PV of debt PVNOA = PV of non-operating assets PVNOL = PV of non-operating liabilities,Adjusting Firm Value Example,A target firm has the following characteristics:An estimated enterprise value of $104 millionLong-term debt whose market value is $15 million$3 million in excess cash balancesEstimated PV of currently unused licenses of $4 millionEstimated PV of future litigation costs of $2.5 million2 million common s