This session started with a look at a major investment banking valuation of a target company in an acquisition and why having a big name on a valuation does not always mean that a valuation follows first principles, with the first principle being We began our intrinsic value discussion by talking about the weapons of mass distraction. If you want to read the blog post I have on the topic, try this link:
After setting the table for the key inputs that drive value - cash flows, growth, risk, we looked at the different ways of approaching valuation (Dividend Discount model, FCFE model, firm valuation) and the roots that they share, and how they result in different estimation processes. Next session, we will continue with a discussion of risk free rate, a foundational number that will drive the rest of our calculations. I have attached a post class test for today, with the solution.
Start of the class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/kennecott.pdf
Post class test:https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session3atest.pdf
Post class test solution: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session3asoln.pdf