21 Jan Post the results of the valuation that you prepared of a financial and banking institution. What are the results of the valuati
Post the results of the valuation that you prepared of a financial and banking institution.
What are the results of the valuation analysis? What is the range of estimated value for 1 standard deviation above and below your best estimate?
What special problems were encountered in the valuation? The Results of the valuation is on the excel spreadsheet attached.
2.What are some of the challenges, issues and *remedies* associated with valuing firms with negative, low or otherwise abnormal earnings?
Sheet1
| EXCESS RETURNS MODEL – VALUING FINANCIAL INSTITUTION 1 | |||||||||
| (Insert Required Data in Yellow-Coded Cells Only) | |||||||||
| $11,478,000,000.0 | Book Value of Equity Invested From Balance Sheet End of Previous Full Year | ||||||||
| $8,354,000,000.0 | Book Value of Equity Invested Currently (May be Same as Above) | ||||||||
| $1,919,000,000.0 | Annual Net Income from Previous Year | ||||||||
| 10.3% | Dividend Payout Ratio | ||||||||
| 1.31 | Beta of Company's Stock | ||||||||
| 3.50% | Risk-free Rate | ||||||||
| 2.00% | Equity (Market) Excess Return Premium | ||||||||
| 6.12% | Cost of Equity (Computer Calculates) | ||||||||
| 16.72% | Return on Equity (Computer Calculates) | ||||||||
| 489164000 | Number of Shares Outstanding | ||||||||
| 14.30% | Assumed Growth Rate for Net Income After Year 5 | ||||||||
| 49.77% | Assumed Return on Equity After Year 5 | ||||||||
| 6.12% | Assumed Cost of Equity After Year 5 | ||||||||
| Year | 1 | 2 | 3 | 4 | 5 | 6 | |||
| Net Income | $1,396,700,296.2 | $1,606,161,899.1 | $1,847,036,227.6 | $2,124,034,213.4 | $2,442,573,281.6 | ||||
| – Equity Cost | $511,264,800.0 | $587,938,618.1 | $676,111,124.2 | $777,506,763.8 | $894,108,595.6 | ||||
| Excess Equity Return | $885,435,496.22 | $1,018,223,280.97 | $1,170,925,103.34 | $1,346,527,449.58 | $1,548,464,686.00 | ||||
| Present Value | $834,371,933.9 | $904,166,766.4 | $979,799,904.9 | $1,061,759,721.0 | $1,150,575,438.4 | ||||
| Beginning Book Value of Equity | 8,354,000,000.0 | 9,606,840,165.7 | 11,047,567,389.2 | 12,704,358,885.3 | 14,609,617,574.7 | ||||
| Cost of Equity | 6.12% | 6.12% | 6.12% | 6.12% | 6.12% | ||||
| Equity Cost | $511,264,800.0 | $587,938,618.1 | $676,111,124.2 | $777,506,763.8 | $894,108,595.6 | ||||
| Return on Equity | 16.72% | 16.72% | 16.72% | 16.72% | 16.72% | ||||
| Net Income | $1,396,700,296.2 | $1,606,161,899.1 | $1,847,036,227.6 | $2,124,034,213.4 | $2,442,573,281.6 | ||||
| Dividend Payout Ratio | 10.3% | 10.3% | 10.3% | 10.3% | 10.3% | ||||
| Dividends Paid | $143,860,130.5 | $165,434,675.6 | $190,244,731.4 | $218,775,524.0 | $251,585,048.0 | ||||
| Retained Earnings | $1,252,840,165.7 | $1,440,727,223.5 | $1,656,791,496.1 | $1,905,258,689.4 | $2,190,988,233.6 | $2,504,299,551.0 | |||
| Terminal Value of Excess Returns | $5,031,745,129.5 | ||||||||
| The PV of Excess Returns | |||||||||
| Valuation | Will Equal 0 if the Assumed ROE | ||||||||
| Book Value of Equity Invested Currently | $8,354,000,000.0 | = or < the Assumed Cost of Equity | |||||||
| Present Value of Excess Return (Next 5 Years) | $4,930,673,764.6 | ||||||||
| Present Value of Terminal Value of Excess Returns | $5,031,745,129.5 | ||||||||
| Value of Equity | $18,316,418,894.0 | ||||||||
| Number of Shares | 489164000 | ||||||||
| Value per Share | $37.44 | ||||||||
| 1 This model replicates Damodaran's Excess Returns Model presented in Illustration 21-4 | |||||||||
| of Damodaran's Investment Valuation, 3rd, John Wiley & Sons (2012). |
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