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Business Valuations

Forums › ACCA Forums › ACCA FM Financial Management Forums › Business Valuations

  • This topic has 7 replies, 4 voices, and was last updated 14 years ago by kachaloo.
Viewing 8 posts - 1 through 8 (of 8 total)
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    Posts
  • December 7, 2010 at 7:52 pm #46745
    karenlaing
    Member
    • Topics: 40
    • Replies: 36
    • ☆☆

    Hi
    You have said to be able to suggest a suitable price based on div val models and per model valuations – is there a rule of thumb in order to obtain a decision? or is it enough to calculate the various methods – I don’t know how to arrive at the decision?

    December 7, 2010 at 8:12 pm #73310
    Anonymous
    Inactive
    • Topics: 0
    • Replies: 44
    • ☆

    When a question is ask .. the DVM can be used when you see that the requirement is available . Example :
    to use DVM you must have your ;

    Do – current dividend
    G- growth
    Ke- cost of equity
    and your Number of share

    this is used mostly when you want to know if this new project or acquisition would benefit the share holders … that is if the previous price would gain increase . That is when we use the DVM( Dividend valuation model)

    When you use PE ratio .. you are considering the project in the benefit of the company as a whole ….. that is to see if the company would enjoy from the new investment (Note :this is not to the benefit of the share holders but to the company as a whole) this what what we call value the whole company. this is normally use

    when you have the PE ratio and the earning per share

    December 7, 2010 at 10:54 pm #73311
    karenlaing
    Member
    • Topics: 40
    • Replies: 36
    • ☆☆

    Sorry, I should re-phrase question, I realise how to calc the valuation methods, but how do you decide suitable price to suggest?

    December 8, 2010 at 1:59 am #73312
    bridmw
    Member
    • Topics: 5
    • Replies: 132
    • ☆☆

    If it’s in a takeover situation the acquiring company can (in theory) offer a price per share up to the value indicated and still be creating value for it’s shareholders. Be prepared to comment on EMH in relation to these methods and remember according to the syllabus that DCF methods are always considered superior because of the flaws in both DGM and PE models.

    December 8, 2010 at 12:03 pm #73313
    kachaloo
    Member
    • Topics: 7
    • Replies: 26
    • ☆

    Stripping Asset = Asset Bassis (NRV)
    Keeping Asset = Asset Bassis (Replacement Cost)

    Minority stake & shareholder point of view = DVM
    Majority Stake = Earning Based–> DCF

    Remember that bit: there is no right answer for this. Valuation is not science it is art 🙂

    hope this help it narrow down a bit for you..

    December 8, 2010 at 12:30 pm #73314
    karenlaing
    Member
    • Topics: 40
    • Replies: 36
    • ☆☆

    Thanks – what is the diff between n realisable value and n replacement cost

    December 8, 2010 at 12:32 pm #73315
    karenlaing
    Member
    • Topics: 40
    • Replies: 36
    • ☆☆

    Is earnings based PER method – how do we incorp DCF?

    December 8, 2010 at 12:55 pm #73316
    kachaloo
    Member
    • Topics: 7
    • Replies: 26
    • ☆

    🙂 looks like you have not studied the text book… doing revision only…;)

    There are FOUR valution methods
    1)Asset Based => Book Value – NRV – Replacement cost
    2)DVM = Po=Do(1+g)/Ke-g
    3)PER= MV= Profit After TAX x PEratio
    4)PV of free cash flow = [Operating Cashflows-Tax+Tax relief-Capital Exp] using WACC as DCF rate [find real rate using fisher fomula (r=(1+m)/(1+i)-1)
    then deduct the Debt = MV

    No 4 is the superior method to be used.

    anyway NRV = minimum market value
    Replacement cost= Maximum market value (incorporating income generated by the asset)

    You do not do DCF use when using PER

    DCF is used for PV of current cash flow – Debt

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