Residual valuation model

CFA Level II
#1

Dear :

According to this formular , Vo is the value of the Firm or just the value of Equity.

V0 = B0 + [(ROE – r) / (r – g)]B0 Thanks

#2

Are you reading and asking questions from Secrete Sauce?

#3

Right now, I am so confused about whether they are the valuation of stock price ( equity) or valuation of Firm value.

Some formulas look very similar making me confused.

please give me some tips.

thanks

#4

To be honest the question is going to say if it’s Book value per share or Book value of equity. If it’s book value of equity then it’s like valution of the firm. If it’s BV per share then it’s gonna be the stock. I mean the stock price is technically (value of firm)/(number of stock). Book value per share is just (Book value of equity)/(number of stock). So the equation works for both value of stock and value of firm. Just look at what the question is asking.

#5

I think the value of the firm is for the whole firm but the value of the stock is just for the Equity part of the balance sheet based on the market value. that is why when to do the discount , WACC and FCFF is used for the value of the firm while cost of equity and dividend is used for the value of the equity.

please add comments

thanks

#6

Yup totally agree. This calculation is only for the equity proportion. That’s why if the question ask me what is the equity value of the firm or what is the stock value, I would use the above formula for equity and stocks respectively. If they ask me calculate total firm value using residual I would probably go (NOPAT - WACC*Asset)/(WACC-G).

Kinda related to Gordon growth, since a stock investors get the leftovers from the debtors because NI is post interest. The value of a stock using the PVDG is NI*payout(dividend)/(r-g).

#7

still confused about the Enterprise Value, liquidation value, , Firm value and Equity value.

if company A wants to buy companny B, which value they should use to value the firm of whether how much moneycompany A should pay ( price of the firm)

Please add some comments.

thanks