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Session 3: The Building Blocks for Intrinsic Value and Risk Free Rates
Description
This session started with a look at a major investment banking valuation of a target company in an acquisition and why having a big name on a valuation does not always mean that a valuation follows first principles. After setting the table for the key inputs that drive value - cash flows, growth, risk, we looked at the process for estimating the cost of equity in a valuation. The key concept is that of a "marginal" investor, who is diversified and looking at risk through that investor's eyes. We spent the rest of the session talking about what should be (but no longer is) the simplest input into the process: the risk free rate.
Start of the class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/kennecott.pdf
Slides: http://www.stern.nyu.edu/~adamodar/podcasts/valfall16/valsession3.pdf
Post class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session3test.pdf
Post class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session3soln.pdf
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