I am a third year Bcom economic student with a passion for finance. I am aiming to do my honours in financial management and that is why good notes are very important to help me achieve this goal. I try my best to make thorough summaries of the class slides and textbook all in one. I hope my notes ...
If Ye to
iÉmne fish
Conventional
MA
transaction where one
capitalstructure
acquier buys a target
sustainability howlongcampis goingto exist tosetofferto high
transfer existing shareholder
wealth to shareholders of
Factors driving the choice of method target
tooffer to low
target decline offer
what influences value of transaction
changes in control
tax considerations
improved management
Valuation techniques maximum price
afjeffsseff.gg hgg
Various techniques DCF
earning yield EY
dividendyield DY
netasset value going concern liquidation BU or MV
constant
dividend
,Net asset value valuation
simple value
of all asset minus any non equity financing items Debt or prefshares
3 approaches of NAV to value a business
1 Book value of assets approach
if business has stable operations it reflects asset at their current market value
usebookvalue to
estimate value
Don't use bookvalue when businesshas large amount ofintangible assets
Problem difficult to classify items such as deferred tax is equity orliability
provides info about the historical position ofthe business doesn't reflect its expected future
performance
changes in future will lead to bookvalue approach resulting in undervaluation
2 Going concern value of asset
if company isn't experencing any financial distress the market value of its assets liab
is the best reflection of true equity value
Assets mostlikely held for capital growth as opposed to generating revenue streams
requires the determination
of the market values of all assets debt or non equity
items
3 liquidity value ofassets
the total proceeds from the sale ofits individual assets
ftp.fffingbafakyfp.is
use when company is under fin distress or when operations are difficult to interpret
could lead to liquidation
value obtained would not reflect value created by combining the individual assets into a
income gereating entity
The liquidation value willbe at a discount
to the going concern value
Intangible assets are ignored
, NAV approach if calculations for market values
7000000 4900000
1 PPE 7mi
800000 80000
2 Patents license 800000
3 Preference shares 1050000
1050000 1050000
2583000 2583000 4 longterm borrowings2460000 t 2460000 St
2983000
whyarebookvalue market value
calculation for liquidation
newcompany
1 PPE 7000000 7000000 301 usehighly specialised equipment
4900000 was very expensive
2 Patent license 800000 101 Whyis liquidation value low
80000
hardto sell thosetype of
assets quickly
Discounted cashflow Dct
preffered when value
ofa company
is bestreflected by future benefitsincome streams generated
byitsassets
DCF uses the same principles
as used with capital project evaluation
net present
calculate value of the project by discounting future cash flows
with the relevant discount rate WAC
main difference between DCF for capital project evaluation
b for valuation purposes
assumption that companies are expected to
be going concerns by therefor have an
indefinite lifespan
no end date perpetuity
investor can determine if investment will offer the required rate of return
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