Financial Valuation Models: Dividend Discount, Discounted Cash Flow, and Abnormal Earnings, Exams of Political Science

Download Financial Valuation Models: Dividend Discount, Discounted Cash Flow, and Abnormal Earnings and more Exams Political Science in PDF only on Docsity!

• Columbia LSE, Final Exam #

In Theo the equity ", Whal does the dividend discount model accomplish? — ANS-Txpresses value as the present yalue of all future dividends. What is the formula for the dividend discount model? — ANS-Equity Value = Mividend()/Q +r)o1) + Mividend(2)/0 +r)*2).... Drawhacks to Dividend Discount Model? — ANS-1. Tiquity value is crealed by Investing and Operational activiles (not financing) 2, Dividends are a by-product of value creation, nol the calalyst. In theory, whal is the Discounted Cash Plow Model (DCT)? - ANS—Determines equily value by finding the Present Value of all Tree Cash Flow to Equity Molders and debt holders (in our class we only do equity holders to find NBY)} Tlow do you derive FCF? — ANS-1. OCI'(1) - Investment (1) - DEBT AND EQUITY 2. RBIT + D/A +/— WC - Capex Just EQUITY 3. Net Profit (1) - BVA) + BYD() 4. Dividends 5. Net Profit - CH(BVE) What is the key lo accurate future FCI Predictions? - ANS—-Tull set of predicted future (condensed) income sheets and balance sheets. In words, What is abnormal Earnings? - ANS—Net profit adjusted for the capital charge. What is the formula for discounted abnormal Earnings (2)? — ANS—Equity Valuc = Net income — R*BVE Equity Value = BYE (o) + (Net profit(]) — ()#BVE(o))/(tr)on... Benefits to discounted abnormal earnings model? — ANS—1. Inuitive appeal (i.e. if firm can only achieve normal ROR on BY, investors shouldn't be willing to pay more)