Day 80 in MIT Sloan Fellows Class 2023, Financial Management 4, NPV -2
Principles for NPV calculation
- Project, project, project.
- Don't use company's CF, capital structure and cost of capital.
Unlevered and Levered beta
If you identified "pure boys", as I described in the following article, you need to be careful about how to calculate beta.
Day 73 in MIT Sloan Fellows Class 2023, Financial Management 2, Harris Seafood - NPV - 足ることを知らず
- Get betas of pure boys
- Unlever betas of pure boys(beta equity * E/(E+D))
- Average them
- Lever an unlevered beta of target company. ( beta *(D+E)/E)
- Then, you can use CAPM.
When you calculate D/(D+E), you need to use market value, not book value. However, debt of market value might not be available, so you should just use book value.
Terminal Value
The most common three methods used in valuation are
- DCF using perpetuities
- FCF/(r-g)
- Earnings multiples P/E, EBIT or EBITDA
- P/E multiple only measures only Equity.
- EBIT/EBITDA
- Identify comparables
- Estimate Firm value for comparables
- Compute the average multiple for comparables
- Multiply EBIT of the project by the average multiple
- Asset multiples using Book Value
- Do not subtract debt
- Which value is break-even point of TV (NPV=0) with the current WACC?
