Pleese explain for better revision
88. An investment bank affirms that the VTS (Value of Tax Shields) of my company is equal to each year's VTS using the WACC as a discount rate. I told them that I have never seen such a calculation of the VIS but they answered that it was a habitual practice. Is that true? 89. I have two valuations of the company we set as an objective. In one of them, the present value of tax shields (D Kd T) was calculated using Ku (required return to unlevered equity) and, in the other one, using Kd (required return to debt). The second valuation is a lot higher than the first one, but which of the two is better? 90. My investment bank told me that the beta provided by Bloomberg incorporates the illiquidity risk and the small cap premium because Bloomberg does the so-called Bloomberg adjustment formula. Is that true? 91. As my company is not listed, the investment banks apply an illiquidity premium. Actually, they say it is an illiquidity premium but then they call it a small cap premium. One of the banks, apparently based on Titman y Martin (2007), added the following small cap premiums: "0.91% if the capitalization is situated between $1,167 and $4,794 million; 1.70% if the capitalization is between $331 and $1,167 million; 4.01% if it is lower than $331 million". Another bank adds 2% because historically the return of small companies was smaller than that of big companies. Which one is more appropriate? 92. Which taxes do I have to use when calculating the Free Cash Flow (FCF) - is it the marginal tax rate or the medium tax rate of the leveraged company? 93. According to what I read in a book, market efficiency hypothesis implies that the expected average value of variations in the shares price is zero. Therefore, the best estimate of the future price of a share is its price today, as it incorporates all the available information. Is that right? 94. An investment bank calculated my WACC. The report says: "the definition of the WACC is WACC - RF + Bu (RM - RF); Ry being the risk-free rate, Bu the unleveraged beta and RM the market risk rate." This is different from what we have seen in our class. Are they right? 95. I read in a sentence passed by the Supreme Court that, in order to value companies, economic doctrine relies on intermediary methods between the practical models and the 'Anglo-Saxon' theoretical models common in the United States and United Kingdom, and the criteria set by the Administration is the result of a combination of both methods. This is completely different from what we have seen in class - is it correct? 96. Did you see the Vueling case? How is it possible that an investment bank set the objective price of its shares in (2.50 per share on the 2" of October of 2007, just after placing Vueling shares at (31 per share in June 2007? 97. I suppose that a valuation consciously realized in my name tells me how much I have to offer for the company, right? 98. Do expected equity flows coincide with expected dividends? 99. What is the difference between simple return and weighted return to shareholders? 100. Is there any indisputable model to value the brand of a company?75. Regarding the WACC that has to be applied to a project, should it be an expected return, an opportunity cost or the average historical return on similar projects? 76. Could we assume that, as we cannot predict the future evolution of the value of shares, a good approximation would be to consider it constant during the next five years? 77. The reasonable thing to do is to finance current assets (collections, inventories..) with short-term debt, and fixed assets with long-term debt. Is this correct? 78. Is the market risk premium a parameter for the national economy or for the world economy? 79. The market risk premium is the difference between the historical return on the stock market and the return on bonds. But how many years does "historical" imply? Shall we use the arithmetic mean or the geometric one? 80. We are valuing a company, a lot smaller than ours, in order to buy it. As that company is a lot smaller than ours it will have no influence on the capital structure and on the risk of the resulting company. This is the reason why I believe that the beta and the capital structure which are relevant to the valuation of the company we are analyzing are the ones of our company. Am I right? 81. Our company (A) is going to buy another company (B). We want to value the shares of B and, therefore, we will use three alternatives of the structure Debt/Shareholders Equity so as to obtain the WACC: 1) present structure of A; 2) present structure of B, and 3) structure used by A to finance the acquisition of B's shares. We will value the company B by applying these three alternatives and then take as a reference the average of the results. Is this correct? 82. When valuing the shares of my company, I calculate the present value of the expected cash flows to shareholders and I add to the result obtained cash holdings and liquid investments. Is that correct? 83. I think the Free Cash Flow (FCF) can be obtained from the Equity Cash Flow (CFac) by using the relation: FCF - CFac + Interests - AD. Is this true? 84. Is the relation between capitalization and book value of shares a good guide to investments? 85. Does it make any sense to form a portfolio comprised of companies with a higher return per dividend? 86. A financial consultant is valuing the company I set as an objective (an entertainment centre) by discounting the cash flows until the end of the dealership at 7.26% (interest rate on 30-year-bonds - 5.10%; market premium - 5%, and Beta - 0.47%). 0.47 is a beta provided by Bloomberg for Kinepolis (the company whose activity is the management of several cinemas in the EU), in function of the Dax Index. Is it correct to use the beta of Kinepolis in this valuation? 87. I am confused because I see different formulae to lever and unlever betas in different books (Damodaran, Mckinsey, Brealey & Myers ...). Which is the correct one
