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About the Author | |
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Preface | |
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Basic Concepts of Corporate Valuation | |
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Why Corporate Valuation? | |
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Introduction | |
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Our Goals | |
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Our Approach: One Step at a Time | |
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Discounted Cash Flow Techniques | |
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Accounting Skills | |
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Technology Skills | |
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Preview of What's Ahead | |
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Summary | |
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A Complete Corporate Valuation for a Simple Company | |
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Introduction | |
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The Basic Concepts of Valuation | |
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Valuing a Very Simple Company | |
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Investors | |
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The Corporate Valuation Model | |
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The Weighted Average Cost of Capital | |
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Calculating Free Cash Flows | |
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An Overview of Financial Statements | |
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The Balance Sheet | |
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The Income Statement | |
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Calculating Free Cash Flows | |
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Calculating NOPAT | |
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Calculating Operating Capital | |
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Free Cash Flow | |
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Corporate Valuation | |
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Corporate Performance: The Return on Invested Capital | |
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Applications of the Corporate Valuation Model | |
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Mergers and Acquisitions | |
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Value-Based Management | |
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Fundamental Investing | |
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Summary | |
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Spreadsheet Problems | |
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Comparing Bond and Stock Valuation Models with the Corporate Valuation Model | |
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Bond Pricing | |
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The Discounted Dividend Model of Stock Pricing | |
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The Uses of Free Cash Flow | |
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Intermediate Concepts of Corporate Valuation | |
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Financial Statements and Free Cash Flow | |
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Introduction | |
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What Is Cash Flow, Anyway? | |
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When Do You Record It? A "Cruel" Rule | |
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The Balance Sheet | |
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The Income Statement | |
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The Statement of Shareholder's Equity | |
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The Statement of Cash Flows | |
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ACME's Free Cash Flow | |
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Defining Free Cash Flow | |
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ACME's Operating Performance | |
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Summary | |
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Spreadsheet Problems | |
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Reconciling Free Cash Flow with the Statement of Cash Flows | |
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Estimating the Value of ACME | |
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Introduction | |
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The Weighted Average Cost of Capital | |
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Risk and Return | |
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Estimating the Cost of Debt | |
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Estimating the Cost of Common Stock | |
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Estimating the Target Weights | |
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Putting the Pieces Together: Calculating the WACC | |
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Estimating the Future Expected Free Cash Flows | |
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Alternative Valuation Approaches: The Method of Multiples | |
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Summary | |
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Spreadsheet Problems | |
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Security Valuation | |
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The Whole versus the Sum of the Parts | |
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Fundamentals of Security Valuation | |
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Projecting Financial Statements | |
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Projecting Free Cash Flows | |
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Introduction | |
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Requirements for Useful Financial Projections | |
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Van Leer, Inc. | |
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Projecting Financial Statements | |
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Modeling the Financial Statements | |
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Choosing Inputs for the Model | |
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Calculating Free Cash Flow | |
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Summary | |
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Spreadsheet Problems | |
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Projecting Consistent Financial Statements: The Miracle of Accounting | |
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Introduction | |
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Financial Policies and Projecting Financial Statements | |
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Projecting Long-Term Debt and Dividends | |
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Making Balance Sheets Balance: The Plug Approach | |
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Projecting Interest Expense and Interest Income | |
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Completing the Projections: Implementing the Financial Policies | |
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Projecting a Complete Income Statement | |
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Projecting Complete Balance Sheets | |
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Checking Your Projections for Plausibility | |
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Summary | |
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Spreadsheet Problems | |
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Multiyear Projections and Valuation | |
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Introduction | |
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One-Year versus Multiyear Projections | |
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In the Short Run Anything Can Happen. In the Long Run... | |
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Considerations for the Long Run | |
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Projecting Operating Profit | |
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Projecting Operating Capital | |
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Projecting Operating Taxes | |
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Dividend and Debt Ratios | |
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The Projected Statements | |
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Balancing | |
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Checking the Projections | |
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Using Projections for Valuation | |
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Summary | |
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Spreadsheet Problems | |
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Technical Issues in Projecting Financial Statements and Forecasting Financing Needs | |
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Introduction | |
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When Projections Aren't a Percentage of Sales | |
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Linear Model with Intercept | |
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Nonlinear Models | |
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Lumpy Assets | |
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Financial Modeling: Art versus Science | |
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Alternative Financing Policies | |
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Alternative Dividend Policies | |
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Alternative Common Stock Policies | |
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Projecting Interest Expense Based on the Average Debt during the Year | |
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Algebraic Solution to Circularity | |
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Spreadsheet Solution to Circularity | |
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An Illustration Using Van Leer | |
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Summary | |
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Spreadsheet Problems | |
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Valuing Actual Companies with the Corporate Valuation Spreadsheet | |
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The Starting Point for Corporate Valuation: Historical Financial Statements | |
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Introduction | |
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An Overview of the Corporate Valuation Spreadsheet | |
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Get the Actual Historical Financial Statements of a Company | |
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Link the Actual Statements to the Comprehensive Statements | |
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Condensing the Comprehensive Statements | |
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Analyzing the Current and Historical Financial Position of the Company | |
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Estimating the Weighted Average Cost of Capital | |
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Choose the Inputs for Your Projections | |
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Completing the Valuation | |
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Getting Financial Statements from the Internet | |
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Thomson Financial and Thomson ONE-Business School Edition | |
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Edgar | |
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EdgarScan | |
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Yahoo! | |
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Company Web Pages | |
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Mapping Your Financial Statements from the Actual Worksheets into the Comprehensive Worksheet | |
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Income Statement | |
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Balance Sheets | |
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Required Special Items | |
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Optional Special Items | |
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Summary | |
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Spreadsheet Problems | |
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Why We Condense the Financials | |
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The Condensed Financial Statements and Historical Analysis | |
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Introduction | |
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The Condensed Statements | |
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Additional Detail on Operating Performance | |
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Additional Detail on Nonoperating Performance | |
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Adjustments Due to GAAP | |
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Calculating Free Cash Flow | |
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NOPAT Calculation | |
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Free Cash Flow Calculations | |
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Analyzing Home Depot's Past and Present Condition | |
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Analysis of Ratios Required to Project Financial Statements | |
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Analysis of Traditional Ratios as Compared to Competitors | |
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Summary | |
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Spreadsheet Problems | |
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Mapping the Comprehensive Statements to the Condensed Statements: Advanced Issues in Measuring Free Cash Flows | |
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Introduction | |
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Overview of Financial Statement Adjustments and Condensing | |
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Income Statements | |
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Balance Sheets: Current Assets | |
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Balance Sheets: Long-Term Assets | |
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Balance Sheets: Current Liabilities | |
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Balance Sheets: Long-Term Liabilities and Equity | |
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An Explanation of Complicated Accounting and the Impact on FCF | |
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Goodwill | |
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Minority Interests | |
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Investments and Advances | |
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Operating Leases | |
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Pension-Related Liabilities | |
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LIFO Reserves | |
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Foreign Currency Translations | |
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Employee Stock Options | |
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Summary | |
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Estimating the Weighted Average Cost of Capital | |
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Introduction | |
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Estimating the Target Weights | |
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Estimating the Values of the Financing Components | |
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Estimating the Target Weight for Long-Term Debt | |
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Estimating the Target Weight for Short-Term Debt | |
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Estimating the Target Weight for Preferred Stock | |
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Estimating the Target Weight for Common Equity | |
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Estimating the Cost of Long-Term Debt | |
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Estimating the Cost of Short-Term Debt | |
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Estimating the Cost of Preferred Stock | |
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Estimating the Cost of Common Stock | |
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Putting the Pieces Together: Calculating the WACC | |
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Complications and Advanced Issues | |
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Convertible Securities | |
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Privately Held Firms and Divisions | |
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Summary | |
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Spreadsheet Problems | |
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Projecting Cash Flows for an Actual Company: Home Depot | |
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Introduction | |
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A Useful Perspective on Projections | |
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The Mechanics of Projecting the Condensed Statements | |
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Using Fade Rates to Input Forecasted Growth Rates | |
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Using Fade Rates to Forecast Home Depot's Growth Rates | |
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Choosing the Other Inputs Needed to Project Free Cash Flow | |
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Choosing the Inputs to Project NOPAT | |
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Choosing the Inputs to Project Operating Capital | |
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Choosing the Inputs to Calculate Operating Taxes | |
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Choosing Inputs to Complete the Projections | |
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Specifying the Dividend and Capital Structure Policies | |
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Specifying the Nonoperating Items | |
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Specifying Interest Rates | |
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Completing the Inputs | |
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Using Quarterly Data to Improve Your Inputs | |
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Reviewing Your Choices of Inputs | |
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Avoiding an Error in Your First Year's Projections | |
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Spotting Errors | |
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Summary | |
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Spreadsheet Problems | |
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Top-Down Analysis | |
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The Macro Prospective: Global and National | |
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The Industry-Level Perspective | |
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The Firm-Level Point of View | |
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The Valuation of an Actual Company: Home Depot | |
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Introduction | |
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Horizon Value Methods | |
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The Continuing Value Horizon Formula | |
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The Book Value Horizon Formula | |
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The Convergence Value Horizon Formula | |
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The General Value Horizon Formula | |
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The Horizon Value for Home Depot | |
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The Value of Operations for Home Depot | |
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The Half-Year Adjustment | |
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Estimating the Value at Times Other than Fiscal Year-End | |
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The Valuation of Home Depot | |
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Projections of Other Financial Measures | |
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Reverse Engineering/Scenario Analysis | |
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Valuing a Company with a Changing Capital Structure | |
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Summary | |
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Spreadsheet Problems | |
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The Adjusted Present Value Method | |
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Capital Structure and the Value of a Company | |
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Too Much Debt and Bankruptcy Costs | |
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Too Much Debt and Managerial Behavior | |
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Valuation When Debt Is Moderate | |
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The Unlevered Value of Operations | |
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The Value of the Tax Shield | |
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Index | |