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Valuation: Measuring and Managing the Value of Companies, Fifth Edition
Chapter 34 Solutions
Valuing High-Growth Companies
1. The DCF method is still preferred and the basic inputs are the same for a high-growth
company as for an established company. In the mature markets, the analysis begins with
development of the company’s markets, and then the analysis works backward. This
analysis involves sizing the market, predicting the level of sustainable profitability, and
2. The total market includes all possible clients that could possibly have use for the product
or service. For a firm that offers reservation-taking services to restaurants, according to
offering high-speed Internet access through a cable service. In that case, all households
3. Estimating market share requires a number of inputs such as the size of the market, the
4. Estimating potential margin requires a triangulation between internal cost projections and
operating margins for established players. The estimation process for capital turnover
reaches scale so that both costs and necessary capital investment will be stable and lower
than in the current, high-growth time period. After making the long-term forecast, the
5. Because many investments for a new, high-growth firm are intangible, accounting
6. The stock did not have to be mispriced. The comparatively low price a year earlier could
have been from a combination of (1) the expected present value of cash flows that was
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