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![Page 1: Presentation](https://reader035.fdocuments.net/reader035/viewer/2022062515/55cf9a7b550346d033a1f0d8/html5/thumbnails/1.jpg)
Laura Martin:
Valuations
Doris Li (3220413)
Carmen Chan (3219451)
Nick Tatarchuk ()
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Topic Areas: Introduction
Background Information
Multiple Analysis Regression model Assumptions
Discounted Cash Flow Assumption
Real Options Assumptions Stealth Tier
Conclusion Flowchart
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Introduction
- Changes in the Cable Industry
- Laura Martin demonstrates the drivers of value in the Cable Industry
- Evaluation of the Multiple Analysis, DCF Analysis and the Real Options
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Topic Areas: Introduction
Background Information
Multiple Analysis Regression model Assumptions
Discounted Cash Flow Assumption
Real Options Assumptions Stealth Tier
Conclusion Flowchart
![Page 5: Presentation](https://reader035.fdocuments.net/reader035/viewer/2022062515/55cf9a7b550346d033a1f0d8/html5/thumbnails/5.jpg)
Multiple Analysis
Multiple Valuation involve the following steps:
1. Define the multiple2. Describe the multiple3. Analyze the multiple4. Apply the Multiple
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Multiple Analysis
Advantages:
- Simple and Cheap- Does not rely on forecasting- Relevant
• Disadvantages:
- EBITDA inflates earnings- Historical Data- Subjective
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Multiple Assumptions
Exhibit 2 shows the summary of financial
data for selected comparable companies
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Multiple Assumptions
R2 is the coefficient of determination which shows the strength in relationship between the two variables
Firms are similar in size, growth and return
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Multiple Assumptions
- EBITDA is calculated at the same period
- EBITDA only focuses on earnings and excludes interest, tax, depreciation and amortization which could have significant impacts on a company
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Regression Vs. Traditional Multiple Analysis
Traditional Multiple Analysis
Uses the average of companies multiples
Regression
Plots results on a graph and a line of best fit is drawn
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Topic Areas: Introduction
Background Information
Multiple Analysis Regression model Assumptions
Discounted Cash Flow Assumption
Real Options Assumptions Stealth Tier
Conclusion Flowchart
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DCF Analysis
DCF Analysis involve the following steps:
1. Forecasting the expected cash flows2. Estimating the discount rate (WACC)3. Calculating the value of the corporation
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DCF Analysis
Advantages:
- Clear, consistent decision criteria for all projects
- Quantitative, decent level of precision
- Not as vulnerable to accounting conventions
- Time value of money
Disadvantages:
- Future rates = Unknown- Lacks in Accuracy –
Decision made now- Use of FCF - Unknown, intangible factors
are valued as zero
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DCF Assumptions
Assumptions:
- WACC of 9.3%: unrealistic changes in market conditions and beta
- Terminal multiple value of 13: realistic conservative in comparison to Exhibit 6
- EBITDA: unrealistic Income statement shows fluctuating figures but forecasted EBITDA shows growing at constant rate
- Asset Intensity ignores ‘stealth tier’
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Topic Areas: Introduction
Background Information
Multiple Analysis Regression model Assumptions
Discounted Cash Flow Assumption
Real Options Assumptions Stealth Tier
Conclusion Flowchart
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Real Options
- 102 MHz, 17 Empty Channels - 100% Capital Spending but < 100% Return- Black Scholes Model (Refer to later slides)
- Flexibility in Real Options
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Black and Scholes Model
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- The Current Stock Price of $23.15 Yes
- The Strike Price Difficult to estimate
- The Volatility of 50% Yes
- The Option Period of 10 years Yes
- The Interest Rate of 5.25% No
Black and Scholes Model
Applicability
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The ‘Stealth Tier’Call Option
The holder of a call option has the right to buy within a specific date at a specified price.
$1.22
$22.45
$23.67
Profit
Loss
Market Price of Asset
Cox’s Call Option
- Opportunity cost of 1.22
- Exercise/Strike Price of $22.45
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The ‘Stealth Tier’
DCF
- Calculate an approximate value for the ‘stealth tier’
Multiples
- Compare multiples of companies who have incorporated the ‘stealth tier’
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Topic Areas: Introduction
Background Information
Multiple Analysis Regression model Assumptions
Discounted Cash Flow Assumption
Real Options Assumptions Stealth Tier
Conclusion Flowchart
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Conclusion
Real Options
DCF
Multiples
Valuations
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Multiples
- Comparable to industries- Subjective
- Historical Data- Size, Growth Return
Conclusion
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Real Options
DCF
Valuations
Conclusion
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DCF
- Clear decision rule- Quantitative precision- Time value of money
- Future rates- Lack of Accuracy- Intangible factors
Conclusion
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Conclusion
Real Options
Valuations
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Real Options
- Overcomes problem of ‘Stealth Tier’- Focus on changes in Technology
Conclusion
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