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  • Exhibits 5.4 and 5.5

    Transféré par

    Oscar Pinillos
    17 vues3 pages
    This hypothetical example models the impact of changes in assumptions on net present value (NPV) and market-to-book ratio over a 15 year period. Key assumptions that can be changed include reinvestment proportion, return on equity, and required return on equity. Higher returns on equity that exceed the required return can create value while lower returns can destroy value. The example calculates accumulated investment value, cash flows, NPV, and market-to-book ratio under different assumptions.

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    This hypothetical example models the impact of changes in assumptions on net present value (NPV) and market-to-book ratio over a 15 year period. Key assumptions that can be changed include reinvestment proportion, return on equity, and required return on equity. Higher returns on equity that exceed the required return can create value while lower returns can destroy value. The example calculates accumulated investment value, cash flows, NPV, and market-to-book ratio under different assumptions.

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    © All Rights Reserved
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    Signaler comme contenu inapproprié
    17 vues3 pages

    Exhibits 5.4 and 5.5

    Transféré par

    Oscar Pinillos
    This hypothetical example models the impact of changes in assumptions on net present value (NPV) and market-to-book ratio over a 15 year period. Key assumptions that can be changed include reinvestment proportion, return on equity, and required return on equity. Higher returns on equity that exceed the required return can create value while lower returns can destroy value. The example calculates accumulated investment value, cash flows, NPV, and market-to-book ratio under different assumptions.

    Droits d'auteur :

    © All Rights Reserved
    Téléchargez comme XLS, PDF, TXT ou lisez en ligne sur Scribd
    Signaler comme contenu inapproprié
    sur 3

    Hypothetical Example of Value Creation/Destruction

    Change BLUE cells to see impact upon NPV and Market/Book

    Assumptions
    Life of investment 5 Term of investment, at the end of which you liquidate at accumulated
    Initial Investment $100 Initial investment is $ 100 millions
    Reinvestment proportion 100% Percent of cash flows reinvested: try 100 (no dividend), 50 (half paid
    Return on equity (ROE) 20% Percent return on equity: try 20 for value creation, 10 for value destru
    Required return on equity (Ke) 15% Required return on equity (discount rate): assumed as 15%
    ROE - Ke 5% Return in excess of required rate of return (+ creates value, - destroys

    Year Now 1 2 3 4 5
    Accumulated Investment Valu $100 $120 $144 $173 $207 $249

    Investment -100 - - - - -
    Returns 20 24 29 35 41
    Reinvestment -20 -24 -29 -35 -41
    Liquidation Proceeds - - - - 249
    Total Cash Flow -$100 $0 $0 $0 $0 $249

    Net Present Value = $23.7

    "Market" or Intrinsic Value $124


    Book Value = $100
    Market/Book Ratio 1.24
    liquidate at accumulated investment value. (Try 5, 10 and 15 years)

    dividend), 50 (half paid out as dividend) and 0 (all paid as dividend)


    ation, 10 for value destruction and 15 for value neutral
    umed as 15%
    creates value, - destroys value)

    6 7 8 9 10 11 12 13 14
    $299 $358 $430 $516 $619 $743 $892 $1,070 $1,284

    - - - - - - - - -
    50 60 72 86 103 124 149 178 214
    -50 -60 -72 -86 -103 -124 -149 -178 -214
    - - - - - - - - -
    $0 $0 $0 $0 $0 $0 $0 $0 $0
    15
    $1,541

    -
    257
    -257
    -
    $0

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