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Module 7 : Valuation using the residual enterprise income valuation model

Module 7 : Valuation using the residual enterprise income valuation model. International Business Machines Corporation F rank H uang. Brief introduction of IBM. incorporated in the State of New York on June 16, 1911 In the computer manufacturing and IT consulting industries

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Module 7 : Valuation using the residual enterprise income valuation model

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  1. Module 7:Valuationusingtheresidualenterpriseincomevaluationmodel International Business Machines Corporation Frank Huang

  2. BriefintroductionofIBM • incorporated in the State of New York on June 16, 1911 • InthecomputermanufacturingandITconsultingindustries • Creates value through integrated solutions that leverage information technology and deep knowledge of business processes • IBM solutions reduces a client‘s operational costs or enablesnew capabilities that generate revenue

  3. Corporate recognition and brand • In 2012, Fortune ranked IBM the • No. 2 largest U.S. firm in terms of number of employees, • the No. 4 largest in terms ofmarket capitalization, • the No. 9 most profitableand • the No. 19 largest firm in terms of revenue. Globally, the company was ranked the No. 31 largest firm in terms of revenue by Forbes for 2011.

  4. Major operation components • The company's major operations consists of five business segments: • Global Technology Services and Global Business Services, which the company collectively calls Global Services, • Software, • Systems and Technology, • Global Financing

  5. Assumptions for parsimonious forecasting • Sales growth rate 1.13% • Enterprise profit margin (EPM) 15.1% • Enterprise asset turnover (EATO) 14.11

  6. Discounted Cash Flow Model • Assumption: growthrate:1.13% Discountrate:7.60%

  7. Enterprise value using DCF model

  8. Enterprise value using REI model formula: Avaluationmodelbasedonaccountingnumbers.

  9. Questions?

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