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Chapter 8 Valuation Exhibits October 22, 2000

Chapter 8 Valuation Exhibits October 22, 2000.  2000 The Marketspace Center, Monitor Group DO NOT REPRODUCE DO NOT DISTRIBUTE WITHOUT PERMISSION. Return on New Investment (ROIC). Continuing Value. 35%. 40%. 45%. 8%. $55,933. $58,038. $59,674. NOPLAT. $84,474. 9%. $80,934.

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Chapter 8 Valuation Exhibits October 22, 2000

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  1. Chapter 8 ValuationExhibitsOctober 22, 2000

  2. 2000 The Marketspace Center, Monitor Group DO NOT REPRODUCE DO NOT DISTRIBUTE WITHOUT PERMISSION

  3. Return on New Investment (ROIC) Continuing Value 35% 40% 45% 8% $55,933 $58,038 $59,674 NOPLAT $84,474 9% $80,934 $87,228 Growth 10% $155,025 $162,820 $168,883 Exhibit 8-6: Continuing Value Is Eighty Five Percent of Aol’s Value and Is Highly Sensitive to Assumptions of Long-term Growth and ROIC WACC = 11% in the long run 15

  4. 2000 The Marketspace Center, Monitor Group DO NOT REPRODUCE DO NOT DISTRIBUTE WITHOUT PERMISSION

  5. Exhibit 8-10: Monte Carlo Simulation of the Probability Distribution of Present Values Probability -15,400 -13,300 -11,200 -9,100 -7,000 -4,900 -2,800 -700 1,400 3,500 5,600 7,700 9,800 11,900 $ BN

  6. Exhibit 8-13: Cash Flows and Probabilities for the First Two Years of the Project • D • D • 0.529 • 144 • B • B • 0.727 • 120 • E • E • A • A • 0.396 • 1 • 100 • 100 • C • C • 0.272 • 83.3 • F • F • 0.074 • 69.4 • 0 • 0 • 1 • 1 • 2 • 2 • Free Cash Flows Tree • Objective Probability Tree

  7. Exhibit 8-14: Free Cash Flows Tree and NPV for the Case Without Additional Test • D • B • 120 • E • A • 100 • C • 83.3 • F • 631.63 • 100 • E(FCF) • 110 • 722 • PV • 400 • Inv. • 322 • NPV • 0 • 1 • 2 • 3 • 4

  8. Exhibit 8-15: Objective Probabilities for the Case With Additional Test • 0.264 • 50% • D • 0.529 • 0.529 • 50% • 0.264 • B • 0.727 • 0 .198 • 50% • E • A • 0.396 • 0.396 • 1 • 50% • 0 .198 • C • 0.272 • 0.037 • 50% • F • 0.074 • 0.074 • 50% • 0.037 • p=1 • p=1 • p=1 • p=1 • p=1 • 0 • 1 • 2 • 3 • 4

  9. Exhibit 8-16: Free Cash Flows Tree for the Case With Additional Test • Optimal Execution in year 4: the company decides whether to invest the $700 or cut off the project depending on the year 4 free cash flow • 50% • D • 0 • 144-120 = 24 • 50% • B • 120 • 50% • E • A • 0 • 100-120 =-20 • 100 • 50% • C • 83.3 • 50% • F • 0 • 69.4-120 =-50.6 • 50% • 0 • 1.02 • 100 • E(FCF) • 749.2 • 110 • 712.55 • PV • 400.00 • Inv. • 312.55 • NPV • 0 • 1 • 2 • 3 • 4

  10. Exhibit 8-17: ROA Free Cash Flow Tree • D • Go straight to market • Straight to market • B • 120 • Conduct test market • E • A • 100 • Go straight to market • C • 83.3 • F • Perform the market test • 0 • 1 • 2 • 3 • 4

  11. Exhibit 8-18: Present Value Tree for the Case Without Additional Test • D • 884.0 • B • 803.7 • A • 722.0 • 683.7 • E • 622.0 • C • 400.0 • 365.0 • 281.7 • F • 69.4 • 0 • 1 • 2 • 3 • 4

  12. Exhibit 8-19: ROA Value of the Project With Flexibility • D • 884.0 • 803.75 • A • 728.84 • 683.75 • B • E • Replicating Portfolio for Node C • At Node E: m400+B (1+rf) = 400 • At Node F: m69.4 + B (1+rf) = 133.2 • m = .807 B = -73.57 • Value of replicating portfolio = mV + B • = .807 (440) - 73.57 • = 300.9 • 628.84 • 400.0 • 384.20 • C • 300.9 • F • 103.24 • PV 728.84 • Investment -400.00 • ROA 328.84 • 0 • 1 • 2 • 3 • 4

  13. Exhibit 8-21: The Rise in Schwab’s Market to Sales Ratio

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