200709-01

This cannot be used to analyze real estate because of the differences in liquidity across the two markets and in the types of investors in each market

200709-02

We generally use a stock index as a proxy for the market portfolio

200709-03

There are relatively few and fairly homogeneous investors in the market

200709-04

In tight markets with low vacancy rates, it is possible for the expected growth rate in rents to be higher than the expected inflation rate at least until the market shortages disappear

200709-05

Discounted cash flow valuation does not reflect market conditions - that the market is strong or weak at the time of the valuation

200709-06

The market rents in the building were expected to average

200709-07

While the sources of these above-market returns vary from case to case, they can arise from a number of different factors

200709-08

Failing to do so will inflate the expected after-tax cash flows and the value of the medallion unjustly

200709-09

The only way to value these assets is by using relative valuation - by looking at how similar assets are priced in the market

200709-10

We can assign probabilities to various market scenarios, estimate cash flows and a present value under each scenario and then calculate the variance across present values

200709-11

Assume that you are interested in acquiring the exclusive rights to market a new product that will make it easier for people to access their email on the road

200709-12

The firm may still face competition from other firms that come up with their own products to serve the same market

200709-13

The net production revenue is the annual cash flow that will be generated, once a resource reserve has been developed, as a percentage of the market value

200709-14

It is exorbitantly expensive to manufacture and the potential market for it will be relatively small initially

200709-15

This is the option to expand an investment, not only in new markets but in new products, to take advantage of favorable conditions

200709-16

Firm may not have good estimates for either input before opening the first store, since it does not have much information on the underlying market

200709-17

Acquiring an internet service provider to have a foothold in the internet retailing market

200709-18

If they can tap external markets for capital - bank debt, bonds and new equity issues

200709-19

If the exposure to market risk, which is what determines the cost of capital, changes at each node, you can argue that using the same cost of capital all the way through is incorrect and that you should be modifying the discount rate

200709-20

Since the debt is a 10-year zero coupon bond, the market interest rate on the bond can be calculated

200709-21

Inputs for Valuing Equity as an Option

200709-22

Estimate the market value of debt and the appropriate interest rate on the debt

200709-23

They can pool their assets and not show the market premium paid in the acquisition

200709-24

Multinational firms that generate earnings in different markets may be able to move

200709-25

Revenue growth will drop depends upon how elastic the demand for the product is and how competitive the overall product market is

200709-26

Firms may have exclusive licensing rights to service a market, as is the case with utilities in the United States

200709-27

The operating risk of a firm is a direct function of the kinds of products or services it provides

200709-28

A mature firm with cost overruns will be very different from the plan you would devise for a young firm that has a product that no longer meets market needs

200709-29

We can replace the unobservable value from the discounted cash flow model with the observed market price and reward or punish managers based upon the performance of the stock

200709-30

Thus, managers may trade off the economic value added from future growth for higher economic value added from assets in place

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Previous Issues

200708

A firm invests its equity and earns just the fair-market rate of return on these investments

200707

Investments available for sale and trading investments

200706

Does a firm reinvest back for future growth

200705

As an investor, would you invest your entire portfolio in one asset

200704

The analysis will be done from the perspective of equity investors

200703

The key to profitable investing

200702

Small stocks are running up, with large bounces at bottoms