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Hello
Sir could you please guide me on the valuations of entity
How would I know which method to use for estimate the value of an entity ..I am confused with when all the concepts all integrated ..like in one question asset beta is used and it ends up till capm and npv …I can’t get the starting point ..for such questions from case study scenario how should get the methodology and starting point .
And about adjusted present value method ..is this told in the qs to use it or I should get it directly from reading scenarios that I should use it
Thank u
It depends so much on the wording of the question, and every question is different.
Essentially you usually need to calculate the NPV of the free cash flows at the WACC. To calculate the WACC you will almost always need to use CAPM in order to calculate the cost of equity, and unless you are given the equity beta you will need to use the asset beta formula to calculate the equity beta.
Watch the lectures working through a few past question 1’s from the exam that are linked from Revision Kit Live on the main P4 page, because I work through the question and discuss the approach as well as the technical content.
Otherwise, assuming you are happy with the individual techniques (CAPM, NPV etc.) then it is really a case of practising all of the questions in your Revision Kit and learning from them.
With regard to APV, usually the question makes it clear when that approach is required.
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