Banking Chapter 19 Valuation And Financial Modeling Case Study Outline The Following

Unlock access to all the studying documents.

View Full Document

Chapter 19

Valuation and Financial Modeling: A Case Study

I. Chapter Outline

The following chapter outline is correlated to the PowerPoint Lecture Slides. The PowerPoint slides

are referenced in bold. Alternative Examples to selected textbook examples are also available in the

PowerPoint Lecture Slides and are also referenced in bold.

19.1 Valuation Using Comparables (Slides 6–9)

• Table 19.1 Estimated 2005 Income Statement and Balance Sheet for Ideko Corporation

19.2 The Business Plan (Slide 14)

• Operational Improvements (Slides 14–16)

• Table 19.3 Ideko Sales and Operating Cost Assumptions (Slide 17)

• Example 19.2 Production Capacity Requirements (Slides 18–19)

• PowerPoint Alternative Example 19.2 (Slides 20–21)

• Capital Expenditures: A Needed Expansion (Slide 22–23)

• Table 19.4 Ideko Capital Expenditure Assumptions (Slide 23)

• Working Capital Management (Slides 24–25)

• Capital Structure Changes: Levering Up (Slides 26–30)

• Table 19.5 Ideko’s Planned Debt and Interest Payments (Slide 28)

• Table 19.6 Sources and Uses of Funds for the Ideko Acquisition (Slide 30)

19.3 Building the Financial Model (Slide 31)

• Interview with Joseph L. Rice, III

• Forecasting Earnings (Slides 31–34)

• Table 19.7 Pro Forma Income Statement for Ideko 2005–2010 (Slide 34)

• Example 19.3 Forecasting Income (Slides 35–36)

• PowerPoint Alternative Example 19.3 (Slides 37–38)

• Working Capital Requirements (Slides 39–40)

• Table 19.8 Ideko’s Working Capital Requirements (Slide 41)

• Table 19.9 Ideko’s Net Working Capital Forecast (Slide 42)

• Forecasting Free Cash Flow (Slide 43)

Berk/DeMarzo • Corporate Finance, Fourth Edition, Global Edition 83

• The Balance Sheet and Statement of Cash Flows (Optional) (Slides 50–52)

• Table 19.11 Pro Forma Statement of Cash Flows for Ideko, 2005–2010 (Slide 53)

• Table 19.12 Pro Forma Balance Sheet for Ideko, 2005–2010 (Slide 54)

19.4 Estimating the Cost of Capital (Slide 55)

• CAPM-Based Estimation (Slide 55)

• Table 19.13 Equity Betas with Confidence Intervals for Comparable Firms (Slide 56)

• Unlevering Beta (Slide 57)

• Table 19.14 Capital Structure and Unlevered Beta Estimates for Comparable Firms (Slide

58)

19.5 Valuing the Investment (Slide 65)

• The Multiples Approach to Continuation Value (Slides 66–69)

• Table 19.15 Continuation Value Estimate for Ideko (Slide 68)

• The Discounted Cash Flow Approach to Continuation Value (Slides 70–72, 78–80)

• Example 19.6 A DCF Estimate of the Continuation Value (Slides 73–74)

• PowerPoint Alternative Example 19.6 (Slides 75–77)

• Table 19.16 Discounted Cash Flow Estimate of Continuation Value, with Implied

EBITDA Multiple (Slide 79)

• Common Mistake: Continuation Values and Long-Run Growth

• APV Valuation of Ideko’s Equity (Slides 81–83)

• IRR and Cash Multiples (Slide 88–90)

• Table 19.19 IRR and Cash Multiples for KKP’s Investment in Ideko (Slide 89)

19.6 Sensitivity Analysis (Slides 91–94)

• Table 19.20 Sensitivity Analysis for KKP’s Investment in Ideko (Slide 92)

Chapter 19 Appendix Compensating Management (Slides 97–101)

• Table 19A.1 Spreadsheet FTE Estimate of the Cost of Management’s Share and KKP’s

Equity Value (Slide 101)

II. Learning Objectives

19-2 Identify the primary factors to consider when estimating the firm’s future cash flows.

19-4 Use the CAPM to estimate the equity cost of capital for a proposed project, using betas of

comparable firms.