Study Session 9: Equity Valuation: Valuation Concepts
For a thinly traded stock, how could the idiosyncratic (diversifiable risk) overwhelm the market risk & thus making beta a poor predictor of future stock returns for company xyz?
In a Fcff calculation question, if the NI is given, do we assume it is NI after preferred dividend or before?
Do we add back Preferred dividend to NI to get FCFF?
Do we have to deduct all interest bearing Liabilities from firm value to derive equity value?
In CFAI Equity topic test, Pacific Wind case, answer for Q5 says:
Differences in GDP growth rates between countries may exist but this is not an important consideration specific to estimating required rate of return between the two countries.
I understand why other factors such as factors premium and FX rate forecasts are essential, but why is GDP growth not as important?
I’m sure this questions has been asked so many times, but when do we use WACC and when use Required Return on Equity? I’m asking the questions under the context of Equity Valuation.
I assume WACC is used to valuate the entire company (debt + equity), and Required Return on Equity for company’s equities only. But say when we’re calculating H model, PVGO, residual income etc., this could be a bit confusing…
In CFAI Equity Topic Test - Rivera, Question 3, why is Caveat 2 correct? Equity Risk Premium
for based on long term gvt bonds is smaller than short term gvt bonds, that should be wrong no? Because long term bonds needs to account for illiquidity and uncertainly?
Which risk-free rate should we use while calculating the cost of equity by CAPM?- The short-term govt. bond yield? or the long term govt. bond yield? I am doing the Topic Tests on equity of the CFA website and I have encountered two sets where two different yields (short and long) were used. Unfortunately they don’t explain in the answers why they used short term in one and long term in the other.
Could somebody please clarify if the CFA books mention somewhere which is to be used and when?
i am wondering what would be the impact of
Current Portion Of Long-Term Debt on FCFF and FCFE?
I believe it should be ignored because it is just an allocation, not an actual outflow. Please advise.
What is the reasoning behind them being negative?
Can some one tell me how they estimated the historical ERP which is given in the solution as 2%.
I understood the supply side calculation for ERP.
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