Episode Details

In this session, after the second quiz, we wrapped up our discussion of intrinsic valuation. For decades, we have valued banks using the dividend discount model, simply because getting cash flows is so difficult, but that approach is built on trusting management at banks to behave sensibly (paying out what they can afford to in dividends) and regulators to do the same. For me, that trust was breached in 2008, and I present a way of estimating FCFE for a bank, using investment in regulatory capital as my stand in for reinvestment. Next session, we will wrap up the valuation section and start on pricing. If you are interested in reading more about valuing financial service companies, try this link:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1798578. We also looked at valuing commodity and cyclical companies, and why capitalizing R&D can change the value of a pharmaceutical company.
Slides: https://pages.stern.nyu.edu/~adamodar/podcasts/valUGspr23/session18slides.pdf
Post class test: https://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session18Dtest.pdf
Post class test: https://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session18Dsoln.pdf

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