Valuation : The Art and Science of Corporate Investment Decisions

by Titman, Sheridan; Martin, John D.

• ISBN13: 9780321336101
• ISBN10: 0321336100
• Edition: 1st
• Format: Hardcover
• Copyright: 2008-01-01
• Publisher: Addison Wesley

Summary

Valuation: The Art and Science of Making Corporate Investment Decisionsis the first textbook to offer an integrated approach to both project and enterprise valuation. The text goes beyond standard DCF analysis by including additional valuation methods commonly used in practice, such as comparables, simulations, and real options. Overview of Evaluation.Project Analysis Using Discounted Cash Flow (DCF):Forecasting and Valuing Cash Flows; Project Risk Analysis.Cost of Capital:Estimating a Firmrs"s Cost of Capital; Estimating Required Rates of Return for Projects.Enterprise Valuation:Relative Valuation Using Market Comparables; Enterprise Valuation; Valuation in a Private Equity Setting; Earnings Dilution, Incentive Compensation, and Project Selection.Futures, Options, and the Valuation of Real Investments:Using Futures and Contractual Options to Value Real Investments; Managerial Flexibility and Project Valuation: Real Options; Strategic Options: Evaluating Strategic Opportunities.For all readers interested in project and enterprise valuation.

Table of Contents

Preface

Overview of Valuation

Introduction

The Nature of Major

Investment Decisions Dealing with Complexity

Process and Discipline Case Study CP3 Corporation, Inc. Summing Up and Looking

Forward

Summary

Project Analysis Using Discounted Cash Flow (DCF)

Forecasting and Valuing

Cash Flows Discounted

Cash Flows and Valuation Defining Investment

Cash Flows Comprehensive Example Forecasting Project Free

Cash Flows Valuing Investment

Cash Flows Summary Problems

Project Risk Analysis

Introduction

Uncertainty and Investment

Analysis Sensitivity

Analysis Learning More about the Project Decision

Trees Valuing Project Flexibility

Summary Problems

Appendix: An Introduction to Simulation Analysis and Crystal Ball

Cost of Capital

Estimating a Firm's Cost of Capital

Introduction Value, Cash Flows, and Discount Rates Estimating the WACC

Summary

Appendix: Extensions and Refinements of the WACC Estimate

Estimating Required Rates of Return for Projects

Introduction

The Pros and Cons of Multiple Risk-Adjusted Costs of Capital Choosing a Project Discount Rate Hurdle Rates and the Cost of Capital Summary Problems

Enterprise Valuation

Relative Valuation Using Market Comparables

Introduction

Valuation Using Comparables Enterprise

Valuation Using EBITDA Multiples Equity

Valuation Using the Price-Earnings Multiple Pricing an Initial Public Offering Other Practical Considerations

Summary Problems

Enterprise Valuation

Introduction

Using a Two-Step Approach to Estimate Enterprise Value

Using the APV Model to Estimate Enterprise Value Summary Problems

Valuation in a Private Equity Setting

Introduction

Overview of the Market for Private Equity Valuing

Investments in Start-ups and Deal Structuring Valuing

LBO Investments

Summary Problems

Earnings Dilution, Incentive Compensation, and Project Selection

Introduction

Project Analysis Earnings per Share and Project Selection Economic

Profit and the Disconnect between EPS and NPV Practical Solutions

Using Economic Profit Effectively

Summary Problems

Futures, Options, and the Valuation of Real Investments

Using Futures and Contractual Options to Value Real Investments

Introduction

The Certainty-Equivalence Method Using Forward Prices to Value

Investment Projects Using Option Prices to Value

Investment Opportunities Caveats and Limitations Tracking Errors

Summary Problems

Option Basics A Quick Review

Multi-Period Probability Trees and Lattices

Calibrating the Binomial Option Pricing Model

Managerial Flexibility and Project Valuation: Real Options

Introduction Types of Real Options Valuing

Investments That Contain Embedded Real Options

Analyzing Real Options as American-Style Options

Using Simulation to Value Switching Options

Mistakes Made in Real Option Valuation

Summary Problems

Appendix: Constructing Binomial Lattices

Strategic Options: Evaluating Strategic Opportunities

Introduction

Where Do Positive-NPV Investments Come From?

Valuing a Strategy with Staged Investments Strategic Value

When the Future Is Not Well Defined Summary Problems

Epilogue Glossary

Index

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