Valuation
FIN 449
Michael Dimond
Introduction
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What this class will cover
How do I get an A in this class?
Relevance
Schedule
Tools & resources
Syllabus
Student Information
• On my website, please fill out the form with your information
Michael Dimond
School of Business Administration
Definitions
• Investment: Purchase of an asset which will create future
cash flows.
• Speculation: Taking a significant business risk to obtain a
commensurate gain.
So what’s the difference?
• Gambling: To bet or wager on an uncertain outcome.
"An investment operation is one which, upon thorough analysis, promises safety of
principal and an adequate return. Operations not meeting these requirements
are speculative."
-- Graham and Dodd's Security Analysis (original 1934 edition)
Michael Dimond
School of Business Administration
Value
• A fundamental question which must be addressed in any
business decision is:
“What is this worth?”
Michael Dimond
School of Business Administration
Valuation Concepts
There is no single value. Value can change dramatically
depending on the answers to these questions:
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What is being valued?
Why is it being valued?
What is the appropriate standard of value?
What is the appropriate premise of value?
When is it being valued?
How will you value it?
What discounts or premiums are appropriate?
Michael Dimond
School of Business Administration
What is being valued?
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Certain assets
Interest-bearing debt
Preferred stock
Common stock
• Controlling interest
• Non-controlling interest
• Enterprise Value (or market value of invested capital)
Michael Dimond
School of Business Administration
Why is it being valued?
• Transactions
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Buying/Selling/Merging
Privatization
Strategic internal decisions
ESOPs
• Tax
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Estate, gift & inheritance taxes
Estate recapitalizations
Charitable contributions
Ad valorem taxes
Buy/Sell agreements
• Litigation
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Dissolution of corporation or partnership
Review/critique of another expert’s report
Damages
Lost profits
Marital dissolution
Michael Dimond
School of Business Administration
What is the appropriate standard of value?
• FMV (Market Value)
• The “cash value” of an asset to a non-specific, hypothetical
buyer when there is no compulsion to sell and both parties have
reasonable knowledge of relevant facts.
• Investment Value
• Intrinsic value. The value to a specific strategic buyer, not a
hypothetical buyer. For private firms, this is often used on family
law courts.
• Fair Value
• Created by State legislatures, “Fair Value” is defined differently
in different states. It is usually used as a standard of value for
dissenting stockholder lawsuits and minority oppression
lawsuits.
Michael Dimond
School of Business Administration
What is the appropriate premise of value?
• Value as a going concern
• Assets in continued use as a viable business enterprise
• Value as an assemblage of assets
• Assets not in current use in the production of income and not as
a going-concern business enterprise
• Value as an orderly disposition
• Assets sold individually with normal exposure to the market
• Value as a forced liquidation
• Assets sold individually with limited or no exposure to the
market
Michael Dimond
School of Business Administration
When is it being valued?
• Valuation date is at a particular moment in time
• Could be historic date or as of the current date
• Only data that is “known or knowable” as of the valuation date should be
incorporated in the report
• Date depends on purpose
• Transaction-related (expected event, e.g. purchase)
• Tax-related (date of gift, date of death, etc.)
• Litigation (event date or change of value over a range of dates)
Michael Dimond
School of Business Administration
How will you value it?
• General Valuation Concepts:
• The economic value of any investment asset is derived from the present value
of future economic benefit that will accrue to the owner
• The most theoretically correct way to value an investment is to project the
future economic benefits of ownership and discount those benefits to present
value at a rate which reflects the time value of money and the uncertainty
(risk) associated with ownership.
Michael Dimond
School of Business Administration
Value
• A fundamental question which must be addressed in any
business decision is:
“What is this worth?”
• “Value” is the present value of future cash flows.
• We will be valuing companies based on their free cash flows
• Damodaran has variations on FCF which we will learn:
FCFF = Free Cash Flow o the Firm
FCFE = Free Cash Flow to Equity
Michael Dimond
School of Business Administration
Considerations in Valuation
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Price buyers are paying for similar assets
Cash flow generating ability
Risks associated with achieving projected cash flows
Value of the net assets owned by the business
Percent of ownership interest
Right to vote and influence business decisions
Marketability of ownership position
Special perquisites of ownership or management
Michael Dimond
School of Business Administration
Approaches to Valuation
• Market Approaches
• Example: Relative valuation estimates the value of an asset by
looking at the pricing of 'comparable' assets relative to a common
variable like earnings, cashflows, book value or sales.
• Income Approaches
• Example: Discounted cashflow valuation relates the value of an
asset to the present value of expected future cashflows on that asset.
• Asset-based Approaches
• Example: Adjusted net asset value method adjusts all individual
assets and liabilities to market value. The amount by which asset
value exceeds liability value is the equity value.
• Option-based Approaches
• Example: Contingent claim valuation, uses option pricing models
to measure the value of assets that share option characteristics.
Michael Dimond
School of Business Administration
Basis for all valuation approaches
• The use of valuation models in investment decisions (i.e., in
decisions of which assets are under valued and which are
over valued) are based upon
• a perception that markets are inefficient and make
mistakes in assessing value
• an assumption about how and when these inefficiencies
will get corrected
• In an efficient market, the market price is the best estimate of
value. The purpose of any valuation model is then the
justification of this value.
Michael Dimond
School of Business Administration
What discounts/premiums are appropriate?
Value may be influenced by extenuating factors
• Premiums
• Control
• Strategic acquisition
• Discounts
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Lack of control
Lack of marketability (liquidity)
Trapped-in capital gain
Key person
Known (or potential) environmental liability
Pending litigation
Concentration of customer base or supplier base
Michael Dimond
School of Business Administration
Where are we going with all this?
Risk &
Cost of Capital
Forecast
Financials
Facts &
Information
Recasting &
Sustainable OCF
DCF Calculations
Comps
Exam
Strawman
Valuation #1
Valuation #2
Final Project
Value &
Perspective
Michael Dimond
School of Business Administration
Valuation – The Big Picture
Michael Dimond
School of Business Administration
Relative Valuation
Michael Dimond
School of Business Administration
Relative Valuation
• What is it?: The value of any asset can be estimated by
looking at how the market prices “similar” or “comparable”
assets.
• Example: Price implied by Earnings, Sales, Book Value etc.
• Philosophical Basis: The intrinsic value of an asset is
impossible (or close to impossible) to estimate. The value of
an asset is whatever the market is willing to pay for it (based
upon its characteristics)
• Problem: “A biased analyst who is allowed to choose the
multiple on which the valuation is based and to pick the
comparable firms can essentially ensure that almost any
value can be justified.” – Aswath Damodaran
Michael Dimond
School of Business Administration
Relative Valuation (cont’d)
• Information Needed: To do a relative valuation, you need
• an identical asset, or a group of comparable or similar
assets
• a standardized measure of value (in equity, this is
obtained by dividing the price by a common variable, such
as earnings or book value)
• and if the assets are not perfectly comparable, variables to
control for the differences
• Market Inefficiency: Pricing errors made across similar or
comparable assets are easier to spot, easier to exploit and
are much more quickly corrected.
Michael Dimond
School of Business Administration
Standardizing Value
• Prices can be standardized using a common variable such as
earnings, cashflows, book value or revenues.
• Earnings Multiples
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Price/Earnings Ratio (PE) and variants (PEG and Relative PE)
Value/EBIT
Value/EBITDA
Value/Cash Flow
• Book Value Multiples
• Price/Book Value(of Equity) (PBV)
• Value/ Book Value of Assets
• Value/Replacement Cost (Tobin’s Q)
• Revenues
• Price/Sales per Share (PS)
• Value/Sales
• Industry Specific Variable (Price/kwh, Price per ton of steel ....)
Michael Dimond
School of Business Administration
SOURCE: Pablo Fernandez, Valuation Methods and Shareholder Value Creation
Michael Dimond
School of Business Administration
SOURCE: Pablo Fernandez, Valuation Methods and Shareholder Value Creation
Michael Dimond
School of Business Administration
Understanding Multiples
• Define the multiple
• In use, the same multiple can be defined in different ways by different users.
When comparing and using multiples, estimated by someone else, it is critical
that we understand how the multiples have been estimated
• Describe the multiple
• Too many people who use a multiple have no idea what its cross sectional
distribution is. If you do not know what the cross sectional distribution of a
multiple is, it is difficult to look at a number and pass judgment on whether it is
too high or low.
• Analyze the multiple
• It is critical that we understand the fundamentals that drive each multiple, and
the nature of the relationship between the multiple and each variable.
• Apply the multiple
• Defining the comparable universe and controlling for differences is far more
difficult in practice than it is in theory.
Michael Dimond
School of Business Administration
Definitional Tests
• Is the multiple consistently defined?
• Both the value (the numerator) and the standardizing variable
(the denominator) should be to the same claimholders in the firm.
In other words, the value of equity should be divided by equity
earnings or equity book value, and firm value should be divided
by firm earnings or book value.
• Is the multiple uniformly estimated?
• The variables used in defining the multiple should be estimated
uniformly across assets in the “comparable firm” list.
• If earnings-based multiples are used, the accounting rules to measure
earnings should be applied consistently across assets. The same rule
applies with book-value based multiples.
Michael Dimond
School of Business Administration
Descriptive Tests
• What is the average and standard deviation for this multiple,
across the universe (market)?
• What is the median for this multiple?
• The median for this multiple is often a more reliable comparison point.
• How large are the outliers to the distribution, and how do we
deal with the outliers?
• Throwing out the outliers may seem like an obvious solution, but if the
outliers all lie on one side of the distribution (they usually are large
positive numbers), this can lead to a biased estimate.
• Are there cases where the multiple cannot be estimated? Will
ignoring these cases lead to a biased estimate of the multiple?
• How has this multiple changed over time?
Michael Dimond
School of Business Administration
Analytical Tests
• What are the fundamentals that determine and drive these
multiples?
• Embedded in every multiple are all of the variables that drive every
discounted cash flow valuation - growth, risk and cash flow patterns.
• In fact, using a simple discounted cash flow model and basic algebra
should yield the fundamentals that drive a multiple
• How do changes in these fundamentals change the multiple?
• The relationship between a fundamental (like growth) and a multiple
(such as PE) is seldom linear. For example, if firm A has twice the
growth rate of firm B, it will generally not trade at twice its PE ratio
• It is impossible to properly compare firms on a multiple, if we do
not know the nature of the relationship between fundamentals
and the multiple.
Michael Dimond
School of Business Administration
Application Tests
• Given the firm that we are valuing, what is a
“comparable” firm?
• It is impossible to find an exactly identical firm to the one you
are valuing.
• While traditional analysis is built on the premise that firms in the
same sector are comparable firms, valuation theory would
suggest that a comparable firm is one which is similar to the
one being analyzed in terms of fundamentals.
• Damodaran says, “There is no reason why a firm cannot be
compared with another firm in a very different business, if the
two firms have the same risk, growth and cash flow
characteristics.” This is not necessarily the case. Legal
requirements may dictate limits in some applications but, more
importantly, the underlying economics must make sense.
Michael Dimond
School of Business Administration
Criteria to Identify Comparable Firms
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Capital Structure
Credit Status
Depth of Management
Personnel Experience
Nature of Competition
Maturity of the Business
SOURCE: Pratt et al, Valuing A Business (4th edition)
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Products
Markets
Management
Earnings
Dividend-paying
Capacity
• Book Value
• Position in Industry
Michael Dimond
School of Business Administration
Choosing Comparable Firms (1)
• In valuing a manufacturer of electronic control
equipment for the forest products industry, we found
plenty of manufacturers of electronic control
equipment but none for whom the forest products
industry was a significant part of their market.
• What to do?
• For guideline companies, we selected manufacturers
of other types of industrial equipment and supplies
which sold to the forest products and related cyclical
industries. We decided the markets served were
more of an economic driving force than the physical
nature of the products produced.
Adapted from: Pratt et al, Valuing A Business (4th edition)
Michael Dimond
School of Business Administration
Choosing Comparable Firms (2)
• At the valuation date in the estate of Mark Gallo, there
was only one publicly traded wine company stock, a
tiny midget compared with the huge Gallo and, for
other reasons as well, not a good guideline company.
• What to do?
• Experts for the taxpayer and for the IRS agreed it was
appropriate to use guideline companies which were
distillers, brewers, soft drink bottlers, and food
companies with strong brand recognitions and which
were subject to seasonal crop conditions and grower
contracts.
Adapted from: Pratt et al, Valuing A Business (4th edition)
Michael Dimond
School of Business Administration
Advantages of Relative Valuation
• Relative valuation is much more likely to reflect
market perceptions and moods than discounted
cash flow valuation. This can be an advantage when
it is important that the price reflect these perceptions
as is the case when
• the objective is to sell a security at that price
today (as in the case of an IPO)
• investing on “momentum” based strategies
• With relative valuation, there will always be a
significant proportion of securities that are under
valued and over valued.
Michael Dimond
School of Business Administration
Advantages of Relative Valuation (cont’d)
• Since portfolio managers are judged based upon
how they perform on a relative basis (to the market
and other money managers), relative valuation is
more tailored to their needs (but remember the
“biased analyst” warning cited earlier).
• Relative valuation generally requires less
information than discounted cash flow valuation
(especially when multiples are used as screens)
Michael Dimond
School of Business Administration
Disadvantages of Relative Valuation
• A portfolio that is composed of stocks which are under valued
on a relative basis may still be overvalued, even if the analysts’
judgments are right. It is just less overvalued than other
securities in the market.
• Relative valuation is built on the assumption that markets are
correct in the aggregate, but make mistakes on individual
securities. To the degree that markets can be over or under
valued in the aggregate, relative valuation will fail
• Relative valuation may require less information in the way in
which most analysts and portfolio managers use it. However,
this is because implicit assumptions are made about other
variables (that would have been required in a discounted cash
flow valuation). To the extent that these implicit assumptions are
wrong the relative valuation will also be wrong.
Michael Dimond
School of Business Administration
When relative valuation works best…
• This approach is easiest to use when
• there are a large number of assets comparable to the one being
valued
• the appropriate multiple for the potential guideline companies does not
show wide dispersion of data.
• these assets are priced in a market
• there exists some common variable that can be used to standardize
the price
• This approach tends to work best for investors who
• have relatively short time horizons
• are judged based upon a relative benchmark (the market, other
portfolio managers following the same investment style etc.)
• can take actions that can take advantage of the relative mispricing; for
instance, a hedge fund can buy the under valued and sell the over
valued assets
Michael Dimond
School of Business Administration
PE Ratio and Fundamentals
• Other things held equal, higher growth firms will have
higher PE ratios than lower growth firms.
• Other things held equal, higher risk firms will have lower
PE ratios than lower risk firms
• Other things held equal, firms with lower reinvestment
needs will have higher PE ratios than firms with higher
reinvestment rates.
• Of course, other things are difficult to hold equal since high
growth firms, tend to have risk and high reinvestment rats.
Michael Dimond
School of Business Administration
PE Ratio: Understanding the Fundamentals
• To understand the fundamentals, start with a basic
equity discounted cash flow model.
• With the dividend discount model,
P0 
DPS1
r  gn
Dividing both sides by the earnings per share,
P0
Payout Ratio * (1  g n )
 PE =
EPS0
r-gn
If this had been a FCFE Model,
P0 
FCFE1
r  gn
P0
(FCFE/Earnings) * (1  g n )
 PE =
EPS0
r-g n
Michael Dimond
School of Business Administration
Consider this…
• You have valued Earthlink Networks, an internet service
provider, relative to other internet companies using Price/Sales
ratios and find it to be under valued almost 50% .When you
value it relative to the market, using the market regression, you
find it to be overvalued by almost 50%. How would you
reconcile the two findings?
 One of the two valuations must be wrong. A stock cannot be
under and over valued at the same time.
 It is possible that both valuations are right.
What has to be true about valuations in the sector for the second
statement to be true?
Michael Dimond
School of Business Administration
Why use Fundamental Analysis?
January 2000: Internet Capital Group was trading at $174.
“Valuation is often not a helpful tool in determining when to sell
hypergrowth stocks”, Henry Blodget, Merrill Lynch Equity
Research Analyst in January 2000, in a report on Internet Capital
Group.
• There have always been investors in financial markets who have
argued that market prices are determined by the perceptions (and
misperceptions) of buyers and sellers (inefficiencies of the
market), and not by anything as prosaic as cash flows or earnings.
• Perceptions do matter, but they are not everything.
• Asset prices cannot be justified by merely using the “bigger fool”
theory.
Michael Dimond
School of Business Administration
“Irrational Exuberance”
January 2000: Internet Capital Group was trading at $174.
January 2001: Internet Capital Group was trading at $ 3.
Michael Dimond
School of Business Administration
Mistaken notions of how the market works?
January 2000: Internet Capital Group was trading at $174.
January 2001: Internet Capital Group was trading at $ 3.
Michael Dimond
School of Business Administration
Discounted Cash Flow Valuation
• What is it: In discounted cash flow valuation, the
value of an asset is the present value of the
expected cash flows on the asset.
• Philosophical Basis: Every asset has an intrinsic
value that can be estimated, based upon its
characteristics in terms of cash flows, growth and
risk.
• Fundamental Analysis derives those cash flows
from the underlying, or fundamental, operations of
the business.
Michael Dimond
School of Business Administration
Discounted Cash Flow Valuation (cont’d)
• Information Needed: To use discounted cash flow valuation,
you need
– to estimate the life of the asset
– to estimate the cash flows during the life of the asset
– to estimate the discount rate to apply to these cash flows to
get present value
• Market Inefficiency: Markets are assumed to make mistakes in
pricing assets across time, and are assumed to correct
themselves over time, as new information comes out about
assets.
Michael Dimond
School of Business Administration
Advantages of DCF Valuation
• Since DCF valuation, done right, is based upon an
asset’s fundamentals, it should be less exposed to
market moods and perceptions.
• If good investors buy businesses, rather than stocks
(the Warren Buffett adage), discounted cash flow
valuation is the right way to think about what you are
getting when you buy an asset.
• DCF valuation forces you to think about the
underlying characteristics of the firm (fundamentals)
and understand its business. If nothing else, it brings
you face to face with the assumptions you are
making when you pay a given price for an asset.
Michael Dimond
School of Business Administration
Disadvantages of DCF valuation
• Since it is an attempt to estimate intrinsic value, it
requires far more inputs and information than other
valuation approaches
• These inputs and information are not only noisy
(and difficult to estimate), but can be manipulated
by the savvy analyst to provide the conclusion he or
she wants.
Michael Dimond
School of Business Administration
Disadvantages of DCF Valuation (con’t)
• In an intrinsic valuation model, there is no guarantee
that anything will emerge as under or over valued.
Thus, it is possible in a DCF valuation model, to find
every stock in a market to be over valued. This can
be a problem for
– equity research analysts, whose job it is to follow
sectors and make recommendations on the most
under and over valued stocks in that sector
– equity portfolio managers, who have to be fully (or
close to fully) invested in equities
Michael Dimond
School of Business Administration
When DCF Valuation works best
• This approach is easiest to use for assets (firms)
whose
– cashflows are currently positive and
– can be estimated with some reliability for future periods, and
– where a proxy for risk that can be used to obtain discount
rates is available.
• It works best for investors who either
– have a long time horizon, allowing the market time to correct
its valuation mistakes and for price to revert to “true” value or
– are capable of providing the catalyst needed to move price
to value, as would be the case if you were an activist
investor or a potential acquirer of the whole firm
Michael Dimond
School of Business Administration
Discounted Cashflow Valuation
t = n CF
t
Value = 
t
t = 1 (1 + r)
where CFt is the cash flow in period t, r is the discount rate
appropriate given the riskiness of the cash flow and t is the life
of the asset.
• For an asset to have value, the expected cash flows have to be
positive some time over the life of the asset.
• Assets that generate cash flows early in their life will be worth
more than assets that generate cash flows later; the latter may
however have greater growth and higher cash flows to
compensate.
Michael Dimond
School of Business Administration
Equity Valuation versus Firm Valuation
• Value just the equity stake in the business
• Value the entire business, which includes, besides
equity, the other claimholders in the firm
Michael Dimond
School of Business Administration
First Principle of Valuation
• Never mix and match cash flows and discount rates.
• The key error to avoid is mismatching cashflows and discount
rates, since discounting cashflows to equity at the weighted
average cost of capital will lead to an upwardly biased
estimate of the value of equity, while discounting cashflows to
the firm at the cost of equity will yield a downward biased
estimate of the value of the firm.
Value of Equity =
t=n CF

t=1
to Equity t
(1+ k e )t
t= n
Value of Firm =
CF to Firm t
 (1+ WACC)
t
t =1
Michael Dimond
School of Business Administration
Equity Valuation
• The value of equity is obtained by discounting expected
cashflows to equity, i.e., the residual cashflows after meeting all
expenses, tax obligations and interest and principal payments,
at the cost of equity, i.e., the rate of return required by equity
investors in the firm.
Value of Equity =
where,
t=n CF

t=1
to Equity t
(1+ k e )t
CF to Equityt = Expected Cashflow to Equity in period t
ke = Cost of Equity
• The dividend discount model is a specialized case of equity
valuation, and the value of a stock is the present value of
expected future dividends.
Michael Dimond
School of Business Administration
Firm Valuation
• The value of the firm is obtained by discounting expected
cashflows to the firm, i.e., the residual cashflows after
meeting all operating expenses and taxes, but prior to debt
payments, at the weighted average cost of capital, which is
the cost of the different components of financing used by the
firm, weighted by their market value proportions.
t= n
Value of Firm =
CF to Firm t
 (1+ WACC)
t
t =1
where,
CF to Firmt = Expected Cashflow to Firm in period t
WACC = Weighted Average Cost of Capital
Michael Dimond
School of Business Administration
Firm Value and Equity Value
• To get from firm value to equity value, which of the following
would you need to do?
 Subtract out the value of long term debt
 Subtract out the value of all debt
 Subtract the value of all non-equity claims in the firm, that are
included in the cost of capital calculation
 Subtract out the value of all non-equity claims in the firm
• Doing so, will give you a value for the equity which is
 greater than the value you would have got in an equity valuation
 lesser than the value you would have got in an equity valuation
 equal to the value you would have got in an equity valuation
Michael Dimond
School of Business Administration
Cash Flows and Discount Rates
• Assume that you are analyzing a company with the following
cashflows for the next five years.
Year
CF to Equity Int Exp (1-t) CF to Firm
1
$ 50
$ 40
$ 90
2
$ 60
$ 40
$ 100
3
$ 68
$ 40
$ 108
4
$ 76.2
$ 40
$ 116.2
5
$ 83.49
$ 40
$ 123.49
Terminal Value $ 1603.0
$ 2363.008
• Assume also that the cost of equity is 13.625% and the firm can
borrow long term at 10%. (The tax rate for the firm is 50%.)
• The current market value of equity is $1,073 and the value of debt
outstanding is $800.
• Calculate the Equity Value and the Firm Value.
Michael Dimond
School of Business Administration
Equity versus Firm Valuation
Method 1: Discount CF to Equity at Cost of Equity to get value of equity
• Cost of Equity = 13.625%
• PV of Equity = 50/1.13625 + 60/1.136252 + 68/1.136253 +
76.2/1.136254 + (83.49+1603)/1.136255
= $1073
Method 2: Discount CF to Firm at Cost of Capital to get value of firm
• Cost of Debt = Pre-tax rate (1- tax rate) = 10% (1-.5) = 5%
• WACC
= 13.625% (1073/1873) + 5% (800/1873) = 9.94%
• PV of Firm = 90/1.0994 + 100/1.09942 + 108/1.09943 + 116.2/1.09944
+ (123.49+2363)/1.09945
= $1873
• PV of Equity = PV of Firm - Market Value of Debt
= $ 1873 - $ 800 = $1073
Michael Dimond
School of Business Administration
First Principle of Valuation
• Never mix and match cash flows and discount rates.
• The key error to avoid is mismatching cashflows and discount
rates, since discounting cashflows to equity at the weighted
average cost of capital will lead to an upwardly biased
estimate of the value of equity, while discounting cashflows to
the firm at the cost of equity will yield a downward biased
estimate of the value of the firm.
Value of Equity =
t=n CF

t=1
to Equity t
(1+ k e )t
t= n
Value of Firm =
CF to Firm t
 (1+ WACC)
t
t =1
Michael Dimond
School of Business Administration
The Effects of Mismatching
Error 1: Discount CF to Equity at Cost of Capital to get equity value
PV of Equity = 50/1.0994 + 60/1.09942 + 68/1.09943 + 76.2/1.09944 +
(83.49+1603)/1.09945 = $1248
Value of equity is overstated by $175.
Error 2: Discount CF to Firm at Cost of Equity to get firm value
PV of Firm = 90/1.13625 + 100/1.136252 + 108/1.136253 +
116.2/1.136254 + (123.49+2363)/1.136255 = $1613
PV of Equity = $1612.86 - $800 = $813
Value of Equity is understated by $ 260.
Error 3: Discount CF to Firm at Cost of Equity, forget to subtract
out debt, and get too high a value for equity
Value of Equity = $ 1613
Value of Equity is overstated by $ 540
Michael Dimond
School of Business Administration