Page 48 - FINAL CFA II SLIDES JUNE 2019 DAY 6
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LOS 25.i: Calculate free cash flows for a target company and estimate the
company’s intrinsic value based on discounted cash flow analysis. READING 25: MERGERS AND ACQUISITIONS
Step 4: Discount free cash flows at WACC: which? = 9.50%.
MODULE 25.3: TARGET COMPANY VALUATION
Step 5: Determine the terminal value and discount it back to the present.
Step 6: Add results from Step 4 and 5. ………target value = $4,148 + $24,875 = $29,023 = $29.023 million
LOS 25.j: Estimate the value of a target company using comparable company analysis (CCA) and comparable transaction analyses (CTA) .
Step 1: Identify the set of comparable firms.
Step 2: Calculate relative value measures in the sample (EV to free cash flow, EV to EBITDA, and EV to sales; (P/E), (P/B), and/or price to sales (P/S))
Step 3: Calculate descriptive statistics (mean, median) for the relative value metrics and apply to target’s estimates; for example, value = EPS × (P/E);
Step 4: Estimate a takeover premium.
Step 5: Calculate the estimated takeover price for the target as the sum of estimated stock value based on comparables and the takeover premium.
