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Corporate Valuation and Stock Price Valuation questions and answers graded A+ 2024/2025
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Corporate Valuation and Stock Price Valuation questions and answers graded A+ 2024/2025
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CorporateValuation
and
Stock
Price
Valuation
What
is
the
difference
between
value
of
operations
and
value
of
stock?
VoP
is
measured
with
FCF
and
WACC:
=
FCF1/(1+WACC)^W+FCF2/(1+WACC)^2)
Value
of
a
stock
is
dividend
and
rate
of
return
=
D1/(1+rs)^1
+
D2/(1+rs)^2
+
D3/(1+rs)^3
What
is
the
hierarchy
of
common
stock?
What
should
be
the
goal
of
management?
Common
stock
represents
ownership.
Ownership
implies
control.
Stockholders
have
ownership
Stockholers
elect
directors.
Directors
hire
management.
Since
managers
are
"agents"
of
shareholders,
their
goal
should
be:
Maximize
stock
price.
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What
are
the
3
ways
to
value
stock?
Free
cash
flow
model -
Constant
growth
-
Nonconstant
growth
Dividend
growth
model
-
Constant
growth
-
Nonconstant
growth
Using
the
multiples
of
comparable
firms
What
is
FCF?
Free
cash
flow
(FCF)
is:
-
The
cash
flow
available
for
distribution
to
all
of
a
company's
investors.
-
Generated
by
a
company's
operations
What
is
WACC?
The
weighted
average
cost
of
capital
(WACC)
is:
-
The
overall
rate
of
return
required
by
all
of
the
company's
investors.
What
is
the
value
of
operations?
The
PV
of
expected
future
FCF
(generated
by
a
company's
operation),
discounted
at
the
WACC,
is
the
value
of
a
company's
operations
(Vop):
What
is
the
formula
for
value
of
operations
What
are
the
two
conditions
in
which
you
can
calculate
the
value
of
operations?
1.
The
free
cash
flows
are
constant
in
each
period.
2.
The
free
cash
flows
eventually
grow
at
a
constant
rate.
Virtually
most
companies
fall
into
this
situation.
What
are
the
two
sources/claims
of
value?
Value
of
operations
-
Primary
source
of
value
comes
from
value
of
operations.
Nonoperating
assets
(also
called
"financial
assets")
-
Short-term
investments
and
other
marketable
securities
(T-bill)
-
Ownership
of
non-controlling
interest
in
another
company
(other
businesses)
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