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Suzanne Sai u 1u7u94(N)

BSc Nathemati cs anu Banki ng anu Fi nance
BKF2u71
Inui vi uual Bomewoik - Chaptei 9
16122u12
Question 1:
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Answei: (u)

Question 2:
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Answei (a): $71S. SS

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Answei (b): $S27. 87

Answei (c): $S27. 87. The WACC val ue al ieauy takes uebt, piefeiieu
stock anu common equi ty i nto account. Al so, the FCF val ues aie on
a shaie basis, anu so, it uoes not mattei how many shaies theie aie
i n the cal cul ati on.

Question S:

Biviuenu uiscount mouel is a methou of estimating a company's intiinsic value. It
is a uiviuenu-focuseu appioach. 0sing this methou, the value of shaies uepenus
on the futuie cash flows those shaies aie expecteu to pioviue, be it in potential
uiviuenus ieceiveu, oi the potential capital gains once the shaie has been solu. It
assumes that companies actually pay uiviuenus, that the uiviuenu stieam is
known, anu that stocks aie solu at the piesent value of all futuie uiviuenu
stieams. The uiviuenu uiscount mouel is fuitheimoie iueal foi stocks having a
cleai uiviuenu payout policy anu a visible eaining stieam. In othei woius, the
only way this methou is beneficial foi a company is if the company pays
uiviuenus. Anothei uiawback is that the assumptions listeu above anu too big
assumptions to be maue. If you assumeu wiongly, the calculation becomes
useless.
An alteinative methou of valuing a company's stock is the coipoiate valuation
mouel. This appioach focuses on sales; costs anu futuie fiee cash flows. Fiee
cash flow is a measuie of a fiim's financial peifoimance, iepiesenting a
company's ability to geneiate cash aftei all investments have been maue. This
mouel is geneially useu when valuing uivisions anu fiims uo not pay uiviuenus