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Valuation
Measuring and Managing the Value of Companies
5th Edition
Chapter 13 Solutions
Calculating and Interpreting Results
Version 1.0
April 1, 2010
Chapter 13
Question 1
Percent of sales
Current Forecast Current Forecast
year year year year
Revenues 120.0 100.0
1. Cost of sales will drop only if all costs are variable (or management reduces fixed costs).
2. The value of property and equipment drops $20 million. Since depreciation equals $10 million, the remaining $10
Chapter 13
Questions 2 & 3
Correct Scenario 1 Scenario 2 Incorrect Average
Which is correct?
Since valuation is not a linear function, you cannot average the inputs to determine the expected value.
Each input must be calculated specifically to that scenario, and equity value must be tied directly to the
individual inputs. Therefore, Question 2 leads to the correct valuation, not Question 3.
Chapter 13
Questions 4 & 5
Procter & Gamble annual report
Net sales change drivers vs. year ago (2009 vs. 2008)
Volume
Volume with excluding
acquisitions acquisitions Foreign Net sales Organic
Segment & divestitures & divestitures exchange Price Mix/other growth growth
Commentary
In 2009, baby care is outgrowing grooming. If this trend persists, a valuation based on the aggregate will not capture the different trends across segments.
Procter & Gamble annual report
$ million
Operating Operating
Segment Revenues pro-t margin
Beauty 18,789 3,367 17.9%
Commentary
Margins range from 12.5 percent to 27.7 percent, so valuations are likely to be quite different. Note how the lowest-growth segments have the highest
margins. Also, given how low the margins are for snacks and pet care, is the segment creating value? Estimates of ROIC are required!
