investment valuation damodaran pdf free download

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This web page is designed to support "Investment Valuation", the second edition. The publisher is John Wiley and Sons. You can navigate the site by either going to individual chapters and getting supporting material by chapter, or by going to the supporting material directly. The supporting material includes:

1. Chapter Outlines and overheads: These are saved as pdf files, and you need Adobe Acrobat to read them. You can download Adobe Acrobat by going to the Adobe site. (www.adobe.com) The overheads are categorized by topic, rather than chapter. To go to overheads, click here.
2. Derivations and Discussion: These represent interesting questions that often come up in the context of the specified topic, with discussions and analyses.
3. Readings: These are readings from business and academic publications that supplement the specific topic.
4. Solutions: The solutions to each chapter are at the end of each chapter in the web site below.
5. Powerpoint Presentations: These are power point presentations that are designed for use by instructors. You will need the password to download these as well.
6. Spreadsheets: These are spreadsheets that supplement the topic. They are in Microsoft Excel 95 format, and can be used on either a Mac or Windows system.
7. Datasets: These are useful datasets to supplement each chapter. They generally include industry averages for key variables and represent updates on many of the tables in the book.
8. Web Casts: These are webcasts of the lectures from the valuation class that I teach at Stern. You can use the lecture notes and the text book to follow the lectures.

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Chapter 1	Chapter 2	Chapter 3	Chapter 4	Chapter 5	Chapter 6
Chapter 7	Chapter 8	Chapter 9	Chapter 10	Chapter 11	Chapter 12
Chapter 13	Chapter 14	Chapter 15	Chapter 16	Chapter 17	Chapter 18
Chapter 19	Chapter 20	Chapter 21	Chapter 22	Chapter 23	Chapter 24
Chapter 25	Chapter 26	Chapter 27	Chapter 28	Chapter 29	Chapter 30
Chapter 31	Chapter 32	Chapter 33	Chapter 34	Chapter 35

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Chapter 1: Introduction to Valuation

Chapter 2: Approaches to Valuation

Topic	Details
Overheads	Download as pdf file
Illustrations	Illustration 2.1: Effects of mismatching cashflows and discount rates Illustration 2.2. The potential for misuse with comparable firms
Data Sets
Spreadsheets
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	Is there an easy way to tell if a cashflow is an equity cashflow or a firm cashflow? What is the difference, if any, between discounted cashflow and asset based valuation?
Readings	Valuation Basics (courtesy of the Motley Fool) Why don't they teach you to invest like Warren Buffett? An open letter to Warren Buffett (from a non-admirer)

Chapter 3: Understanding Financial Statements

Topic	Details
Overheads	Download as pdf file
Illustrations	Illustration 3.1: Asset Values for Boeing and the Home Depot Illustration 3.2: Measuring Liabilities and Equity: Boeing and the Home Depot Illustration 3.3: Measures of Earnings Illustration 3.4: Estimating Return on Capital Illustration 3.5: ROE Computations Illustration 3.6: Interest and Fixed Charge Coverage Ratios Illustration 3.7: Book Value Debt Ratios and Variants- Boeing and Home Depot
Data Sets	mgnroc.xls: Operating margins, turnover ratios and returns on capital of firms in the United States, classified by industry. rocroe.xls: Return on capital, debt equity ratios, book interest rates and returns on equity of firms in the United States, classified by industry. wcdata.xls: Working capital ratios for firms in the United States, classified by industry. covratio.xls: Interest coverage and fixed charge coverage ratios for firms in the United States, classified by industry. dbtfund.xls: Book value debt ratios and market value debt ratios for firms in the United States, classified by industry.
Spreadsheets	finratio.xls: Compute the profitability ratios for a firm, based upon financial statement data.
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	How different are accounting rules in different countries? How do you do valuation when you do not trust the accounting statements?
Readings	Measuring Earnings The Content of an Annual Report Low Points in Accounting History Operating Leases as Debt

Chapter 4: The Basics of Risk

Topic	Details
Overheads	Download as pdf file
Illustrations	Illustration 4.1: Calculation of standard deviation using historical returns: Boeing and the Home Depot
Data Sets	optvar.xls: There is a dataset on the web that summarizes standard deviations and variances of stocks in various sectors in the United States ratingfins.xls: There is a dataset on the web that summarizes key financial ratios by bond rating class for the United States in the most recent period for which the data is available.
Spreadsheets
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	Why is the marginal investor assumed to be diversified? How do I estimate historical standard deviations and variances? How about correlations and covariances?
Readings	Operating Risk as a Measure of Risk Market Risk and Time Horizon Investors must recall risk New Definitions of Risk Diversification matters Can you diversify and pick stocks at the same time? What makes your stock price go up or down?

Chapter 5: Option Pricing Theory and Models

Topic	Details
Overheads	Download as pdf file
Illustrations	Illustration 5.1: Binomial Option Valuation Illustration 5.2: Valuing an option using the Black-Scholes Model Illustration 5.3: Valuing a short-term option with dividend adjustments – The Black Scholes Correction Illustration 5.4: Valuing a long term option with dividend adjustments - Leaps Illustration 5.5: Using Pseudo-American option valuation to adjust for early exercise Illustration 5.6: Valuing a warrant with dilution Illustration 5.7: Valuing a warrant on Avatek Corporation Illustration 5.8: Valuing a put using put-call parity: Cisco& AT&T
Data Sets	optvar.xls: There is a dataset on the web that summarizes standard deviations and variances of stocks in various sectors in the United States
Spreadsheets	optst.xls: This spreadsheet allows you to estimate the value of a short term option, when the expected dividends during the option life can be estimated. optlt.xls: This spreadsheet allows you to estimate the value of an option, when the underlying asset has a constant dividend yield. bstobin.xls: This spreadsheet allows you to estimate the parameters for a binomial model from the inputs to a Black-Scholes model. warrant.xls: This spreadsheet allows you to estimate the value of an option, when there is a potential dilution from exercise.
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	How do I make sure that the inputs to the Black-Scholes model are consistent? Will the Black-Scholes and Binomial models give me different values and why?
Readings

Chapter 6: Market Efficiency - Definition, Tests and Evidence

Topic	Details
Overheads	Download as pdf file
Illustrations	Illustration 6.1: Example of an event study - Effects of Option Listing on Stock prices Illustration 6.2: Example of a portfolio study - Price Earnings Ratios
Answers to Concept Checks/ Critical Thinking	Concept Checks Critical Thinking
Data Sets
Spreadsheets
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	How do my views on market efficiency affect how I approach valuation?
Readings	Survival bias in mutual fund performance Bogle on picking mutual funds Crazy market is tough to beat... Dumb Investors, Smart Markets A New Paradigm for Markets?

Chapter 7: Riskless Rates and Risk Premiums

Topic	Details
Overheads	Download as pdf file
Illustrations
Answers to Concept Checks/ Critical Thinking	Concept Checks Critical Thinking
Data Sets	histretSP.xls: Summarizes historical returns on stocks, T.Bonds and T.Bills going back to 1926. ratings.xls: This dataset includes default spreads for bonds in different ratings classes. ctryprem.xls: Contains the updated ratings for countries and the risk premiums associated with each. histimpl.xls: Shows the inputs used to calculate the premium in each year for the U.S. market.
Spreadsheets	implprem.xls: This spreadsheet allows you to estimate the implied equity premium in a market.
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	Should I use the government bond rate of the country where my firm is located as my riskfree rate? What if I have a firm with operations in different countires and cashflows in different currencies? What if the government bond rate of the currency (of my company�s cashflows) includes default risk? When would I use the arithmetic average risk premium (as opposed to the geometric risk premium)? Why is the historical premium so much higher than the implied premium in the United States?
Readings	Risk Premium in Emerging Markets Classic Rule of Risk Premium under Attack Are risk premiums too low? (Greenspan testimony) Historical Risk premiums: A reexamination

Chapter 8: Estimating Risk Parameters and Costs of Financing

Topic	Details
Overheads	Download as pdf file
Illustrations	Illustration 8.1: Estimating a Regression Beta for Boeing Illustration 8.2: Estimating a Beta for Titan Cements Illustration 8.3: Effects of Leverage on betas: Boeing Illustration 8.4: Estimating a Bottom-up Beta for Vans Shoes – January 2001 Illustration 8.5: Estimating a Bottom-up Beta for Boeing: September 2000 Illustration 8.6: Estimating a Bottom-up Beta for Titan Cements – January 2000 Illustration 8.7: Beta of a Firm After an Acquisition: Boeing and McDonnell Douglas Illustration 8.8: Estimating Accounting Betas ––Defense Division of Boeing - 1995 Illustration 8.9: Estimating the Cost of Equity for Boeing – June 2000 Illustration 8.10: Estimating the Cost of Equity for Embraer – March 2001 Illustration 8.11: Estimating the Cost of Debt: Boeing in December 2000 Illustration 8.12: Estimating the Cost of Debt: Embraer in March 2001 Illustration 8.13: Calculating the Cost Of Preferred Stock: General Motors Co. Illustration 8.14: Breaking down a convertible bond into debt and equity components: Amazon Inc Illustration 8.15: The Debt Value of Operating Leases: Boeing in December 2000 Illustration 8.16: Difference between market value and book value debt ratios – Boeing in June 2000 Illustration 8.17: Estimating Cost of Capital - Boeing Illustration 8.18: Estimating Cost of Capital – Embraer in January 2001
Data Sets	betas.xls: Updated betas and unlevered betas by business sector in the United States. spearn.xls: Earnings changes, by year, for the S&P 500 going back to 1960. wacc.xls: Costs of debt, costs of equity, debt ratios and costs of capital, by industry group, for firms in the United States.
Spreadsheets	accbeta.xls: Estimate the accounting beta on a division or firm. risk.xls.Run a regression of stock returns against market returns and estimate risk parameters. levbeta.xls.Estimate the unlevered beta for a firm and compute the betas as a function of the leverage of the firm. ratings.xls: This spreadsheet allows you to estimate the synthetic rating and cost of debt for any firm. oplease.xls: This spreadsheet allows you to convert operating lease expenses into debt. wacccalc.xls: This spreadsheet allows you to convert book values of debt into market values.
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	When can I use the regression beta as my estimate of beta in a valuation? When estimating bottom-up betas by looking at comparable firms, how should I define comparable firms? Should I adjust the beta for a firm's size or other characteristics? Can I use the yield to maturity on a bond issued by the company as the cost of debt? If I have an actual rating, do I need to even estimate a synthetic rating? How can I build a more complete model for estimating ratings? Can I use book value of debt as a proxy for market value of debt? What should be in my market value of equity?
Readings	A contrary view on betas Margin for Safety.. An alternative to beta?

Chapter 9: Measuring Earnings

Topic	Details
Overheads	Download as pdf file
Illustrations	Illustration 9.1: Updated Earnings for Ariba: June 2000 Illustration 9.2: Capitalizing R&D expenses: Amgen in March 2001 Illustration 9.3: Should you capitalize SG&A expense? Analyzing Amazon.com and America Online Illustration 9.4: Capitalizing Recruitment and Training Expenses: Cyber Health Consulting Illustration 9.5: Adjusting Operating Income for Operating Leases: The Gap in 2001 Illustration 9.6: Adjusting Earnings for One-time Charges
Data Sets
Spreadsheets	R&Dconv.xls: This spreadsheet allows you to convert R&D expenses from operating to capital expenses. oplease.xls: This spreadsheet allows you to convert operating lease expenses into debt.
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	How do you know if a one-time charge or income is truly one time?
Readings	R& D's effects on earnings Smoothing Earnings Is this debt? One-time Write off? The Accounting Black Box The Practices of Five Companies: GE, Coke, AIG, Williams and IBM Warnings Signs in Earnings Reports

Chapter 10: From Earnings to Cashflows

Topic	Details
Overheads	Download as pdf file
Illustrations	Illustration 10.1: Effect of Tax Rate assumptions on value Illustration 10.2: The Effect of Net Operating Loss on Value- Commerce One Illustration 10.3: Tax Benefit from Expensing: Amgen in 2001 Illustration 10.4: Estimating Normalized Net Capital Expenditures– Reliance India Illustration 10.5: Effect of Capitalizing R&D: Amgen Illustration 10.6: Estimating Net Capital Expenditures: Cisco in 1999 Illustration 10.7: Working Capital versus Non-cash Working Capital – Marks and Spencer Illustration 10.8: Estimating Non-cash Working Capital Needs – The Gap
Data Sets	taxrate.xls: There is a dataset on the web that summarizes average effective tax rates by industry group in the United States for the most recent quarter. wcdata.xls: There is a dataset on the web that summarizes non-cash working capital needs by industry group in the United States for the most recent quarter. capex.xls: Summarizes capital expenditures as a percent of depreciation, by industry group.
Spreadsheets	R&Dconv.xls: This spreadsheet allows you to convert R&D expenses from operating to capital expenses. oplease.xls: This spreadsheet allows you to convert operating lease expenses into debt.
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	When would you include cash in working capital to compute cash flows? What marginal tax rate do you use when you have a firm that operates in multiple countries (with different tax rates)? What will happen to value if you ignore acquisitions when estimating capital expenditures?
Readings	Accounting versus Cash Earnings Off Balance Sheet Items? Special Purpose Entities

Chapter 11: Estimating Earnings Growth

Topic	Details
Overheads	Download as pdf file
Illustrations	Illustration 11.1: Differences between Arithmetic and Geometric Averages: Motorola Illustration 11.2: Linear and Log-linear models of growth: General Electric. Illustration 11.3: Negative Earnings: Commerce One and Aracruz Celulose Illustration 11.4: Cisco: Earnings Growth and Size of the Firm Illustration 11.5: Growth in Earnings Per Share Illustration 11.6: Growth in Net Income Illustration 11.7: Breaking down Return on Equity Illustration 11.8: Effects of Changing Return on Equity: Con Ed Illustration 11.9: Measuring the Reinvestment Rate, Return on Capital and Expected Growth Rate – Embraer and Amgen Illustration 11.10: Current, Historical Average and Industry Averages Illustration 11.11: Estimating Expected Growth with Changing Return on Capital: Titan Cement and Motorola Illustration 11.12: Estimating Revenues: Commerce One and Ashford Illustration 11.13: Estimating Operating Margins: Commerce One and Ashford Illustration 11.14: Estimated Sales to Capital Ratios: Commerce One and Ashford
Data Sets	histgr.xls: There is a dataset on the web that summarizes historical growth rates in earnings and revenues by industry group for the United States. fundgrEB.xls: There is a dataset on the web that summarizes reinvestment rates and return on capital by industry group in the United States for the most recent quarter. margins.xls: This dataset on the web summarizes operating margins, by industry, for the United States.
Spreadsheets	chgrowth.xls: This spreadsheet allows you to estimate the expected growth rate in operating income for a firm where the return on capital is expected to change over time.
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	Why might analyst estimates of growth deviate from the fundamental growth rate? Can you use historical, analyst and fundamental growth rates in the same valuation? Can the fundamental growth rate be negative?
Readings	The inside of earnings growth in the 1990s Evaluating analyst growth estimates Return on Capital, not growth....

Chapter 12: Closure in Valuation: Estimating Terminal Value

Topic	Details
Overheads	Download as pdf file
Illustrations	Illustration 12.1: Length of High Growth Period Illustration 12.2: Stable Growth rates and Excess Returns Illustration 12.3: Stable Growth Inputs Illustration 12.4: Choosing a Growth Pattern
Data Sets	betas.xls: This dataset on the web summarizes the average levered and unlevered betas, by industry group, for firms in the United States. eva.xls: This dataset on the web summarizes the returns on capital (equity), costs of capital (equity) and excess returns, by industry group, for firms in the United States. wacc.xls: This dataset on the web summarizes the debt ratios and costs of debt, by industry group, for firms in the United States. divfund.xls: This dataset on the web summarizes retention ratios, by industry group, for firms in the United States. capex.xls: This dataset on the web summarizes the reinvestment rates, by industry group, for firms in the United States.
Spreadsheets	impliedROC.xls: Solves for the return on capital implied in terminal value assumptions about growth and reinvestment.
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	Can I use a growth rate higher than the growth rate of the economy as my stable growth rate if my firm is a well-managed firm or if it has other stellar qualities? When would you use liquidation value instead of terminal value? How do you estimate terminal multiples from fundamentals?
Readings	Competitive Advantage Period

Chapter 13: Dividend Discount Models

Topic	Details
Overheads	Download as pdf file
Illustrations	Illustration 13.1: Value a regulated firm: Consolidated Edison in May 2001 Illustration 13.2: Value a real estate investment trust: Vornado REIT Illustration 13.3: Valuing a firm with the two-stage dividend discount model: Procter & Gamble Illustration 13.4: Valuing a firm with modified dividend discount mode: Procter & Gamble Illustration 13.5: Valuing the S&P 500 using a dividend discount model: January 1, 2001 Illustration 13.6: The Value of Growth: P&G in May 2001 Illustration 13.7: Valuing with the H model: Alcatel Illustration 13.8: Valuing with the Three-stage DDM model: Coca Cola
Data Sets	divfund.xls: This dataset on the web summarizes retention ratios, by industry group, for firms in the United States.
Spreadsheets	DDMst.xls: This spreadsheet allows you to value a stable growth firm, with stable firm characteristics (beta and retun on equity) and dividends that roughly match cash flows. DDM2st.xls: This spreadsheet allows you to value a firm with a temporary period of high earnings followed by stable growth. DDMH.xls: This spreadsheet allows you to use the H model to value a stock. DDM3st.xls: This spreadsheet allows you to value a firm with a period of high growth followed by a transition period where growth declines to a stable growth rate.
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	Can you value stocks that do not pay dividends with the dividend discount model? How do you allow for stock buybacks in the dividend discount models? How does the personal taxation of dividends affect the value of a share?
Readings	The Dividend Discount Model The dividend yield matters....

Chapter 14: Free Cashflow to Equity Discount Models

Topic	Details
Overheads	Download as pdf file
Illustrations	Illustration 14.1: Estimating Free Cash Flows to Equity – The Home Depot and Boeing Illustration 14.2: FCFE Stable Growth Model: Singapore Airlines Illustration 14.3: Capital Expenditure, Depreciation and Growth Rates Illustration 14.4: Two-Stage FCFE Model: Nestle Illustration 14.5: Three Stage FCFE Model: Tsingtao Breweries (China) Illustration 14.6: Comparing the DDM and FCFE Models: Coca Cola
Data Sets	divfcfe.xls: There is a dataset on the web that summarizes dividends, cash returned to stockholders and free cash flows to equity, by sector, in the United States.
Spreadsheets	dividends.xls: This spreadsheet allows you to estimate the free cash flow to equity and the cash returned to stockholders for a period of up to 10 years FCFEst.xls: This spreadsheet allows you to value the equity in a firm in stable growth, with all of the inputs of a stable growth firm FCFE2st..xls: This spreadsheet allows you to value a firm with a temporary period of high growth in FCFE, followed by stable growth FCFE3st..xls: This spreadsheet allows you to value a firm with a temporary period of high growth in FCFE, followed by a transition period, followed by stable growth
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	Why do firms not pay out their free cashflow to equity as dividends? What is the link between corporate governance and the use of FCFE models?
Readings	Microsoft faces a call to pay dividends

Chapter 15: Valuing a Firm: Free Cashflow to Firm and APV Models

Topic	Details
Overheads	Download as pdf file
Illustrations	Illustration 15.1: Valuing a firm with a stable growth FCFF Model: Tube Investments of India (TI) Illustration 15.2: Valuing The Gap: Dealing with Operating Leases Illustration 15.3: Valuing Amgen: Effects of R&D Illustration 15.4: Valuing Embraer: Dealing with Country Risk Illustration 15.5: Valuing a firm with the APV approach: Tube Investments Illustration 15.6: WACC, Firm Value, and Leverage Illustration 15.7: Analyzing the Capital Structure for Boeing – March 1999 Illustration 15.8: Using the Adjusted Present Value Approach to calculate Optimal Debt Ratio for Boeing in 1999
Data Sets	betas.xls: Updated betas and unlevered betas by business sector in the United States. ratings.xls: This dataset includes default spreads for bonds in different ratings classes. wacc.xls: Costs of debt, costs of equity, debt ratios and costs of capital, by industry group, for firms in the United States.
Spreadsheets	fcffginzu.xls: This spreadsheet allows you to estimate the value of a firm using the FCFF approach. fcffvsfcfe.xls: This spreadsheet allows you to compare the equity values obtained using FCFF and FCFE models captstr.xls: This spreadsheet allows you to compute the optimal debt ratio firm value for any firm, using the same information used for Boeing. It has updated interest coverage ratios and default spreads built in apv.xls: This spreadsheet allows you to compute the value of a firm, with leverage, using the adjusted present value approach
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	What is the key difference between the cost of capital and APV approaches? When is it more appropriate to use the APV approach to value firms?
Readings	Adjusted Present Value with growth and changing cost of capital

Chapter 16: Estimating Equity Value Per Share

Topic	Details
Overheads	Download as pdf file
Illustrations	Illustration 16.1: Consolidated versus Separate Valuation Illustration 16.2: Cash Invested at below market rates Illustration 16.3: Discount for Poor Investments in the Future Illustration 16.4: Microsoft's cash and marketable securities Illustration 16.5: Valuing a closed-end fund Illustration 16.6: Valuing Holdings in other company Illustration 16.7: Fully Diluted Approach to estimating Value per Share: Commerce One Illustration 16.8: Treasury Stock Approach: Commerce One Illustration 16.9: Option Value Approach: Commerce One
Answers to Concept Checks/ Critical Thinking	Concept Checks Critical Thinking
Data Sets	cash.xls: There is a dataset on the web that summarizes the value of cash and marketable securities by industry group in the United States for the most recent quarter.
Spreadsheets	warrants.xls: This spreadsheet allows you to value the options outstanding in a firm, allowing for the dilution effect.
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	How do you value holdings of private companies? What do you do about minority interests? How is the valuation of executive stock options different from the valuation of other options?
Readings	Option backlash at companies Options at dot.com firms The Value of Transparency

Chapter 17: Fundamental Principles of Relative Valuation

Topic	Details
Overheads	Download as pdf file
Illustrations	Illustration 17.1: Comparing PE ratios and growth rates across firms: Beverage Companies Illustration 17.2: Revisiting the Beverage Sector: Sector Regression
Data Sets
Spreadsheets
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	Do you make fewer assumptions when you use multiples than when you do discounted cashflow valuation?
Readings

Chapter 18: Earnings Multiples

Topic	Details
Overheads	Download as pdf file
Illustrations	Illustration 18.1: Estimating the PE ratio for a high growth firm in the two-stage model Illustration 18.2: Estimating a Fundamental PE ratio for Procter and Gamble Illustration 18.3: PE Ratios across time Illustration 18.4: PE Ratios across time for the S&P 500 Illustration 18.5: PE Ratios in markets with different fundamentals Illustration 18.6: Comparing PE ratios across markets Illustration 18.7: An Example with Emerging Markets Illustration 18.8: Comparing PE ratios for Global telecomm firms Illustration 18.9: Valuing Procter and Gamble using the market regression Illustration 18.10: Estimating the PEG ratio for a firm Illustration 18.11: Estimating and Using the PEG ratio for Data Networking firms Illustration 18.12: Comparing Relative PE ratios for automobile stocks– December 2000 Illustration 18.13: Analyzing Amazon using Price to Future Earnings per share Illustration 18.14: Estimating Value to EBITDA with cross holdings Illustration 18.15: Analyzing Value to EBITDA multiples Illustration 18.16: Comparing the Value to EBITDA Multiple: Steel companies
Data Sets	pedata.xls: There is a dataset on the web that summarizes price earnings ratios and fundamentals by industry group in the United States for the most recent year vebitda.xls: There is a dataset on the web that summarizes value to earnings multiples and fundamentals by industry group in the United States for the most recent year
Spreadsheets	eqmult.xls: This spreadsheet allows you to estimate the price earnings ratio for a stable growth or high growth firm, given its fundamentals. firmmult.xls: This spreadsheet allows you to estimate firm value multiples for a stable growth or high growth firm, given its fundamentals.
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	How do outstanding options affect PE ratio comparisons? Should you look at earnings before or after extraordinary items? Where do rules of thumb (say 8 times EBITDA) come from?
Readings	Malkiel on PE ratios Interest rates and PE ratios PE ratios with R&D Motley Fool on PEG ratios

Chapter 19: Book Value Multiples

Topic	Details
Overheads	Download as pdf file
Illustrations	Illustration 19.1: Estimating the PBV ratio for a stable firm - Volvo Illustration 19.2: Estimating the price-book value ratio for a 'privatization' candidate - Jenapharm (Germany) Illustration 19.3: Estimating the PBV ratio for a high growth firm in the two-stage model Illustration 19.4: Estimating the Price/Book Value Ratio for a high growth firm using FCFE - Nestle Illustration 19.5: Return on Equity and Price-Book Value Illustration 19.6: Comparing Price to Book Value Ratios: Integrated Oil companies Illustration 19.7: Valuing a private firm using the cross-sectional regression Illustration 19.8: ROE and P/BV Ratios - The case of IBM
Data Sets	pbvdata.xls: There is a dataset on the web that summarizes price to book and value to book multiples and fundamentals by industry group in the United States for the most recent year
Spreadsheets	eqmult.xls: This spreadsheet allows you to estimate the price to book ratio for a stable growth or high growth firm, given its fundamentals. firmmult.xls: This spreadsheet allows you to estimate firm value multiples for a stable growth or high growth firm, given its fundamentals.
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	How do stock buybacks affect price to book ratios? When do price to book ratios and value to book ratios convey the most information?
Readings	Price to Book Value Bargains

Chapter 20: Revenue and Sector-specific Multiples

Topic	Details
Overheads	Download as pdf file
Illustrations	Illustration 20.1: Estimating the PS ratio for a high growth firm in the two-stage model Illustration 20.2: Estimating the price to sales ratio for Unilever Illustration 20.3: Estimating the value to sales ratio for Coca Cola Illustration 20.4: Estimating the effect of lower margins of price-sales ratios Illustration 20.5: Choosing between a high-margin and a low-margin strategy. Illustration 20.6: Examining the effects of moving to a lower-margin, higher volume strategy: Philip Morris in 1993 Illustration 20.7: Valuing a brand name using value-sales ratio Illustration 20.8: Valuing a brand name: The Coca Cola Example Illustration 20.9: Revenue Multiples and Margins: Specialty Retailers Illustration 20.10: Revenue Multiples and Margins: Internet Retailers Illustration 20.11: Regression Approach – Specialty Retailers Illustration 20.12: Regression Approach – Internet Retailers Illustration 20.13: Valuing Cisco and Motorola using Sector and Market Regressions- July 2000 Illustration 20.14: Estimating the Value per Subscriber: Internet Portal Illustration 20.15: Comparing Value per Site Visitor
Data Sets	psdata.xls: There is a dataset on the web that summarizes price to sales and value to sales ratios and fundamentals by industry group in the United States for the most recent year.
Spreadsheets	eqmult.xls: This spreadsheet allows you to estimate the price to sales ratio for a stable growth or high growth firm, given its fundamentals. firmmult.xls: This spreadsheet allows you to estimate firm value multiples for a stable growth or high growth firm, given its fundamentals.
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	What is the argument for using sector-specific multiples? When do sector-specific multiples work best?
Readings	Value per customer? An analysis of Amazon's value Value to Vision? A New Ratio

Chapter 21: Valuing Financial Services Firms

Topic	Details
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Illustrations	Illustration 21.1: Stable Growth Dividend Discount Model – Citigroup Illustration 21.2: A High Growth Dividend Discount Model – State Bank of India Illustration 21.3: Valuing a Non-dividend Paying Financial Service Firm – NetBank Illustration 21.4: Excess Return Valuation – Morgan Stanley Dean Witter Illustration 21.5: Comparing PE ratios: Insurance Companies Illustration 21.6: Earnings Multiples for Business: Citigroup Illustration 21.7: Price to Book Value Ratios: Investment Banks Illustration 21.8: Valuing Subsidies and Social Investment
Data Sets
Spreadsheets	eqexret.xls: Estimates the value of a financial service firm from the expected excess returns in the future.
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	How do you factor in regulatory constraints and rules into the value of a bank or financial service firm? How does the quality of a bank's loan get reflected in its value?
Readings	Creative Accounting at Banks

Chapter 22: Valuing Firms with Negative Earnings

Topic	Details
Overheads	Download as pdf file
Illustrations	Illustration 22.1: Normalizing Earnings for a Firm after a Poor Year: Daimler Benz in 1995 Illustration 22.2: Valuing a cyclical firm during a recession – adjusting the growth rate: Chesapeake Corp. in early 1993 Illustration 22.3: Normalizing Earnings for a Cyclical Firm in a Recession: Historical Margin Illustration 22.4: Valuing a Commodity company: Aracruz Celulose Illustration 22.5: Valuing a firm with operating problems: Marks and Spencer Illustration 22.6: Valuing a privatization – CVRD Illustration 22.7: Adjust debt ratio over time: Hyundai Illustration 22.8: Valuing an infrastructure firm – Global Crossing
Data Sets	dbtfund.xls: There is a dataset on the web that summarizes book and market value debt ratios by industry group in the United States for the most recent year
Spreadsheets	normearn.xls: This spreadsheet allows you to normalize the earnings for a firm, using a variety of approaches distress.xls: Estimates the probability that a firm will cease existence as a going concern - i.e. the probability of distress.
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	How do you differentiate between earnings drops that are temporary and those that are long-term? How do you assess the probability of bankruptcy? How do you estimate distress value?
Readings	Warning signs of distress Valuing Distressed Firms

Chapter 23: Valuing Young and Start-up Firms

Topic	Details
Overheads	Download as pdf file
Illustrations	Illustration 23.1: Commerce One: Last Financial Year versus Trailing 12 Months Illustration 23.2: Commerce One: Estimating Revenue Growth Illustration 23.3: Estimating Sustainable Margin and Path to Margin: Commerce One Illustration 23.4: Estimating Reinvestment Needs: Commerce One Illustration 23.5: Estimating Risk Parameters and Costs of Capital: Commerce One Illustration 23.6: Estimating Firm Value: Commerce One Illustration 23.7: Valuing Equity per Share: Commerce One Illustration 23.8: Value Drivers for Commerce One
Data Sets
Spreadsheets	higrowth.xls: Values a high growth firm, based on revenue growth and target margins.
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	How do you estimate revenue growth in future years for a young firm with no history? How do you consider the possibility that a young firm may not survive?
Readings	Six Myths about the valuation of technology companies

Chapter 24: Valuing Private Firms

Topic	Details
Overheads	Download as pdf file
Illustrations	Illustration 24.1: Estimating Accounting Betas –– InfoSoft Illustration 24.2: Estimating a Fundamental Beta: InfoSoft Illustration 24.3: Estimating bottom-up betas – New York Yankees and InfoSoft Illustration 24.4: Adjusting bottom-up beta for non-diversification Illustration 24.5: Estimating Cost of Debt: Yankees and Infosoft Illustration 24.6: Estimating Cost of Capital: Yankees and Infosoft Illustration 24.7: Estimating Operating Income: Yankees and Infosoft Illustration 24.8: Estimating Growth: Yankees and Infosoft Illustration 24.9: Closure in Valuation and Terminal Values: Yankees and Infosoft Illustration 24.10: Estimating the Illiquidity Discount for the New York Yankees Illustration 24.11: Valuing InfoSoft Illustration 24.12: Estimating a per-share value for InfoSoft Illustration 24.13: Valuing a Private Equity Stake
Data Sets
Spreadsheets	liqdisc.xls: This spreadsheet allows you to estimate the illiquidity discount on a private firm.
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	How can a private business owner maximize the value of the business for sale?
Readings	Restricted stock discounts

Chapter 25: Acquisitions and Takeovers

Topic	Details
Overheads	Download as pdf file
Illustrations	Illustration 25.1: A Status Quo Valuation of Digital Illustration 25.2: The Value of Control at Digital Illustration 25.3: Valuing Synergy: Compaq and Digital Illustration 25.4: Tax Benefits of writing up Asset Values after Takeover: Congoleum Inc. Illustration 25.5: Setting the Exchange Ratio Illustration 25.6: Valuing A Leveraged Buyout: Congoleum Inc.
Data Sets
Spreadsheets	synergy.xls: This spreadsheet allows you to estimate the approximate value of synergy in a merger or acquisition. merglbo.xls: This spreadsheet allows you to evaluate the cash flows and the value of a leveraged buyout.
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	How should the value of synergy be apportioned between the bidder and target firms?
Readings	Synergy in Mergers The Keys to Success in M & A: The KPMG Report Stocks versus Cash Acquisitions: The Performance of Acquirers New rules on goodwill amortization CEO Egos and Big Mergers

Chapter 26: Valuing Real Estate

Topic	Details
Overheads	Download as pdf file
Illustrations	Illustration 26.1: Valuing an office building Illustration 26.2: Valuing the Equity Stake in a building Illustration 26.3: Valuing a property based upon comparables Illustration 26.4: Regression Approach
Data Sets
Spreadsheets	reval.xls: Values a income-generating real estate properties.
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	How do you factor the effect of rent control into the value of a building? How do you value vacant land?
Readings	A Simple Explanation of Cap Rates Operating Income in Real Estate Real Estate offers steadier returns

Chapter 27: Valuing Other Assets

Topic	Details
Overheads	Download as pdf file
Illustrations	Illustration 27.1: Valuing a New York City Cab Medallion: June 1994 Illustration 27.2: Valuing a dental practice Illustration 27.3: Valuing a five-star restaurant – Lutece in 1994 Illustration 27.4: Valuing the Copyright on "Investment Valuation"
Data Sets
Spreadsheets
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	What is the difference between valuing cash-flow generating assets and collectibles? How do you reduce the impact of the "key person" in a valuation?
Readings	Art as an investment

Chapter 28: The Option to Delay and Valuation Implications

Topic	Details
Overheads	Download as pdf file
Illustrations	Illustration 28.1: Valuing the Option to Delay a Project Illustration 28.2: Valuing a Patent: Avonex in 1997 Illustration 28.3: Valuing Biog en as a firm Illustration 28.4: Valuing an Oil Reserve Illustration 28.5: Valuing an oil company - Gulf Oil in 1984
Data Sets	optvar.xls: Standard deviations in firm value and equity value by industry group in the United States
Spreadsheets	delay.xls: Estimate the value of an option to delay an investment. product.xls: Estimate the value of a patent. natres.xls: Estimate the value of an undeveloped natural resource reserve.
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	Why, if a patent is an option, will firms ever exercise the option (develop the patent)? When would you use option pricing to value a firm with patents?
Readings	Making real options real Literature on real options in venture capital and R&D

Chapter 29: The Option to Expand and Abandon: Valuation Implications

Topic	Details
Overheads	Download as pdf file
Illustrations	Illustration 29.1: Valuing an Option to Expand: Ambev and Guarana Illustration 29.2: Considering the value of the option to expand Illustration 29.3: Valuing Financial Flexibility at the Home Depot Illustration 29.4: Valuing an Option to Abandon: Airbus and Lear Aircraft
Data Sets	optvar.xls: Standard deviations in firm value and equity value by industry group in the United States
Spreadsheets	expand.xls: This spreadsheet allows you to estimate the value of the option to expand a project to cover new markets or new products, using the Black-Scholes model. abandon.xls: Estimate the value of the option to abandon an investment. finflex.xls: Estimate the value of financial flexibility as an option.
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	When does it make sense to add a premium for the option to expand? How does financial flexibility affect how much firms borrow and how much cash they hold?
Readings	Real Options and Business Strategy How much is flexibility worth? Get Real Reality Check: A skeptical look at real options The Real Power of Real Options

Chapter 30: Valuing Equity in Distressed Firms

Topic	Details
Overheads	Download as pdf file
Illustrations	Illustration 30.1: Valuing Equity as an Option Illustration 30.2: Firm Value and Equity Value Illustration 30.3: Equity Value and Volatility Illustration 30.4: Probabilities of default and Default Spreads Illustration 30.5: Valuing Equity as an option – Eurotunnel in 1997 (DCF valuation)
Data Sets	optvar.xls: Standard deviations in firm value and equity value by industry group in the United States
Spreadsheets	equity.xls: Estimate the value the equity in a troubled firm as an option.
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	What are the implications of viewing equity as an option for vulture investing? What are the implications of viewing equity as an option for lenders to firms?
Readings	Vulture Investing

Chapter 31: Value Enhancement: A Discounted Cashflow Perspective

Topic	Details
Overheads	Download as pdf file
Illustrations	Illustration 31.1: Potential for value creation from divestiture: Boeing Illustration 31.2: Operating Margin Comparisons Illustration 31.3: Tax Burden and Valuation Illustration 31.4: Non-Cash Working Capital: The Home Depot Illustration 31.5: Reinvestment Rates, Return on Capital and Value Illustration 31.6: Revenue Growth, Operating Margins and Sales to Capital Ratios Illustration 31.7: Potential for Increasing the Length of the High Growth Period: Cisco & Motorola Illustration 31.8: The Effect of Financing Mix on Value Illustration 31.9: A Value Enhancement Plan
Data Sets	cfbasics.xls: There is a dataset on the web that summarizes operating margins, tax rates and non-cash working capital as a percent of revenues by industry group for the United States. fundgrEB.xls: There is a dataset on the web that summarizes returns on capital and reinvestment rates by industry group for the United States. wacc.xls: There is a dataset on the web that summarizes debt ratios and costs of capital by industry group for the United States.
Spreadsheets	valenh.xls: This spreadsheet allows you to estimate the approximate effect of changing the way a firm is run on its value.
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	Is there a "best way" to restructure?
Readings	Microsoft learning cost-cutting from GE Learning from the Super Companies Dare to keep your stock price low

Chapter 32: Value Enhancement: EVA, CFROI and Other Tools

Topic	Details
Overheads	Download as pdf file
Illustrations	Illustration 32.1: Discounted Cashflow Value and Economic Value Added Illustration 32.2: An EVA Valuation of Boeing - 1998
Data Sets	eva.xls: Firm and Equity EVAs by industry group for the United States
Spreadsheets	fcffeva.xls: This spreadsheet allows you to convert a discounted cash flow valuation into an EVA valuation and vice versa
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	Under what conditions will your estimate of firm value be the same using both EVA and DCF approaches?
Readings	EVA as elixir An EVA debate

Chapter 33: Valuing Fixed Income Securities

Topic	Details
Overheads	Download as pdf file
Illustrations	Illustration 33.1: Valuing a straight bond at issue Illustration 33.2: Valuing a seasoned straight bond Illustration 33.3: Estimating durations for coupon bonds Illustration 33.4: Yields to Maturity and Spot Rates Illustration 33.5: Spot Rates and Forward Rates Illustration 33.6: Valuing a conversion option / convertible bond Illustration 33.7: Estimating yields to maturity and call on a callable bond Illustration 33.8: Valuing a callable bond Illustration 33.9: Valuing a 2-year Cap/Floor on 6 Month LIBOR
Data Sets	optvar.xls: Standard deviations in firm value and equity value by industry group in the United States
Spreadsheets	bondval.xls: Estimates the value of a straight bond convbond.xls: Estimates the value of a convertible bond
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	A better measure of inflation
Readings

Chapter 34: Valuing Futures Contracts

Topic	Details
Overheads	Download as pdf file
Illustrations	Illustration 34.1: Futures versus Forward Contracts - Gold Futures Contract Illustration 34.2: Calculating Equity and Maintenance Margins Illustration 34.3: Calculation Conversion Factors for T.Bond futures
Data Sets
Spreadsheets	commfuture.xls: Estimates fair price for a storable commodity future finfuture.xls: Estimate fair price for stock index future
Solutions to Problems	Download as pdf file
Estimation Issues and Questions
Readings

Chapter 35: Overview and Conclusions

Topic	Details
Overheads	Download as pdf file
Illustrations
Data Sets
Spreadsheets	model.xls: Chooses the right model to value your firm.
Solutions to Problems	Download as pdf file
Estimation Issues and Questions	Is there a way to blend discounted cashflow and relative valuation?
Readings

Overheads

Topic	Chapters
Introduction to Valuation	Chapter 1-2
Discounted Cashflow Valuation: Estimating Inputs	Chapter 3,4,6-12, 16
Discounted Cashflow Valuation: Examples	Chapter 13-15, 21-23
Relative Valuation	Chapters 17-20
Valuing Private Companies	Chapter 24
Option Applications in Valuation	Chapter 28-30
Valuing Acquisitions	Chapter 25
Value Enhancement	Chapter 31-32
Closing thoughts	Chapter 35

Estimation Issues and Questions

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	13	14	15	16	17	18
	19	20	21	22	23	24
	25	26	27	28	29	30
	31	32	33	34	35

Source: https://pages.stern.nyu.edu/~adamodar/New_Home_Page/Inv2ed.htm

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