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Description and Syllabus
This is a class about valuing assets that will cover the spectrum both in terms of the types of assets and firms that we will value but also in terms of the different approaches to valuation. You can get the syllabus for the class by clicking here.

Project Description
You will be doing a DCF valuation of your firm, developing a value enhancement strategy and estimating a relative value for your firm. You can get a project description by clicking here. You can get sample project reports from previous years by clicking here, here, here or here.

Textbook and Lecture Notes

The choices for books for this class are either Investment Valuation (second edition) or Damodaran on Valuation (second edition). The books are backed up by with online data and material. You can get to either book's home page by clicking here.
The lecture notes will be provided as a packet in class and are also available in pdf format below.

Pre-reading

There is no required pre-reading for the class. If you do want to get a jump on the class, you can start on the lecture notes or text book early. If your tools are a little rusty, you may want to review the primers on present value, accounting and statistics that I have on my web site.

Session Descriptions

Sessions 1,2 and 3: Basics of DCF Valuation
Outline: These sessions will cover all aspects of DCF valuation, from the structure of the models to estimating inputs - cash flows, growth rates and discount rates.
Lecture Notes: You can download the pdf version of the overheads used for this session by clicking here
Examples: You can download the valuation of Titan Cement in excel format by clicking here and the valuations of Amazon by clicking here for 2000, 2001 and 2002.

Readings: Estimating Riskfree Rates Estimating Risk Premiums Estimating Risk Parameters Dealing with Operating Leases Dealing with R&D Expenses	Supporting Spreadsheets Operating Lease Converter R&D Converter Spreadsheet Home Page
Supporting Data Sets Levered and Unlevered Betas by Industry Costs of Capital by Industry Sector Risk Premiums for Other Markets Capital Expenditures, Depreciation and Reinvestment Rate by Industry Working Capital Requirements by Industry Sector Data Home Page	Practice Problems DCF valuation problems

Session 4: Value Enhancement and Loose Ends in Valuation

Outline: This session will complete the discussion of discounted cash flow valuation and then move on to a discussion of value enhancement from a DCF framework and examine the loose ends that often stymie valuations.
Lecture Notes: You can download the pdf version of the overheads used for this session by clicking here

Readings: The Dark Side of Valuation Value Enhancement: Back to the Future	Supporting Spreadsheets EVA Valuation Spreadsheet Home Page
Supporting Data Sets EVA and Equity EVA by Industry Data Home Page	Practice Problems Old Quizzes Solutions

 

Session 5: Relative Valuation

Outline: This session will cover multiples and how they are used and misused in practice.
Lecture Notes: You can download the pdf version of the overheads used for this session by clicking here

Readings: PE Ratios and Interest Rates (Wall Street Journal)	Supporting Spreadsheets Equity Multiples Firm Value Multiples Spreadsheet Home Page
Supporting Data Sets PE Ratios and Expected Growth Rates by Industry Sector PBV Ratios and ROE by Industry Sector PS Ratios and Margins by Industry Sector Value/EBITDA Multiples by Industry Sector Regressions of Multiples against fundamentals Data Home Page	Practice Problems Relative Valuation Old Quizzes Solutions

Session 6: Option Pricing Applications in Valuation

Outline: This session will cover the use of real options in valuation.
Lecture Notes: You can download the pdf version of the overheads used for this session by clicking here

Readings: Making real options real (McKinsey Quarterly)	Supporting Spreadsheets Equity in a Troubled Firm Natural Resource Firms Patents Spreadsheet Home
Supporting Data Sets Firm Value and Equity Standard Deviations (for use in real option pricing models) Data Home Page	Practice Problems Option pricing problems