VALUE

1
VALUE

• Chapter 7
• Time value of money
• Chapter 8 9
• Stocks Bonds
• Chapter 10
• Cost of Capital

2
Study Guidelines

• Practice with Exhibits in Chapters 7-10
• Skip on Graduate Annuities (P198-201)
• Practice Exhibits 7.1 thru 7.11, except 7.9 8.2
  8.6
• 9.4 and 10.3
• Review more examples on the Website
• Amortization, Student Loan, Using a 3-stage
  Model, Coca-Cola Model
• CAPM and Fama-French model
• Articles by Faff and Reinganum
• Read at least introduction parts before class

3

• Concepts and Models
• CAPM Dividend Discount Model
• Fama-French model
• Undervalued stocks
• Weighted Averaged Cost of Capital
• Excel functions
• PV, FV, PMT, NPER, RATE, (PRICE, YIELD)

4
Chapter 7Time Value of Money

• Present value, future value, annuities in EXCEL
• PV(RATE, NPER, PMT, FV, Type)
• FV(RATE, NPER, PMT, PV, Type)
• PMT(RATE, NPER, PV, FV, Type)
• NPER(RATE, PMT, PV, FV, Type)
• RATE(NPER, PMT, PV, FV, Type)
• Type is a binary variable, indicating the timing
  of the cashflows. ) 1 for beginning 0 for the
  end.
• NPV(rate, value1, value2, , ,)
• IRR(Values, Guess)

5
Chapter 8 Stock Valuation (Skip p.232-242 in
5th Ed.)

• INTRINSIC VALUE OF AN ASSET
• PV OF THE EXPECTED FUTURE CASH FLOWS

One example is the Gordon Model
6
Stock Valuation

• Undervalued stocks if their expected returns (k)
  are above the CAPM benchmark returns
• Undervalued stocks if the market prices are below
  their intrinsic values (Po).

7
Applications (on the Website)

• 3-stage dividend model
• Coca-Cola Model
• Fama-French 3-factor Model

8
Chapter 9 Bond Valuation (Skip p. 263 279)

• Ignore PRICE and YIELD functions in the book.
• Again focus on PV and RATE functions
• Try Exhibit 9-4 , An example for PV is on the
  Web (Bondprice.xls)

9
Chapter 10 Cost of Capital (skip p. 297-305 )

• Weighted Averaged Cost of Capital (or WACC)
• Try Exhibit 10-3, Array Sum function.
• This is the discount rate used to calculate the
  present value. (Denominator)