Young Analysts Finance

Bootcamp
Day 4 & 5
Valuation

Valuation is the process of determining the worth of an

asset or company.
The Capital Asset Pricing Model (CAPM)

Expected return on an asset based

on the risk free returns in the
macro-whole (usually,
countrywide)
CAPM Sample Question

Shares of Sara Co have a Beta of 1.4

Risk premium is 9% and the risk free rate is 3%

What is Sara Co’s cost of equity?

Key Methods: Discounted Cash Flow Analysis

DCF analysis determines the value of an investment today, based on

projections of how much money that investment will generate in the future.
WACC

Weighted average cost of capital (WACC) represents a firm's average after-tax

cost of capital from all sources, including common stock, preferred stock,
bonds, and other forms of debt.

WACC is the average rate that a company expects to pay to finance its assets.
Cash Flow Calculate the Net Present Value (NPV)

Year Cash Flow NPV is how much an investment is worth throughout its
0 -$11 million lifetime, discounted to today's value.

1 $1 million

2 $1 million

3 $4 million

4 $4 million

5 $6 million
Internal Rate of Return (IRR)

The internal rate of return (IRR) is the annual rate of growth that an
investment is expected to generate.

IRR is a discount rate that makes the net present value (NPV) of all cash flows
equal to zero in a discounted cash flow analysis.
Ramazotti SA has $1 million allocated for capital expenditures. Which of the following
projects should the company accept to stay within the $1 million budget? How much does
the budget limit cost the company in terms of forgone NPV? The opportunity cost of capital
for each project is 11 %.
Earnings before interest and taxes (EBIT)

EBIT = Revenue − COGS − Operating Expenses

Or
EBIT = Net Income + Interest + Taxes
where:
COGS = Cost of goods sold
DEPRECIATION

Straight Line

Declining Balance

Double Declining Balance

Sum-of-the-Years-Digits

Units of Production
EBITDA

EBITDA = Net Income + Taxes + Interest Expense +

Depreciation & Amortization
and
EBITDA = Operating Income + Depreciation & Amortization
FCFF
Terminal Growth Rate

The constant rate that a company is expected to grow at

forever.
Price to Earnings Ratio
Price to Book Ratio
Comparable Company Analysis (CCA)
Can you compare:

Apple Huawei
Bank of America Norinchukin
McDonalds 7/11
Benchmarking
The Apple Example