Illustration 3.1: Asset Values for Boeing and the Home Depot
Illustration 3.2: Measuring Liabilities and Equity: Boeing and the Home Depot
Illustration 3.3: Measures of Earnings
Illustration 3.4: Estimating Return on Capital
Illustration 3.5: ROE Computations
Illustration 3.6: Interest and Fixed Charge Coverage Ratios
Illustration 3.7: Book Value Debt Ratios and Variants- Boeing and Home Depot

optvar.xls: There is a dataset on the web that summarizes standard deviations and variances of stocks in various sectors in the United States
ratingfins.xls: There is a dataset on the web that summarizes key financial ratios by bond rating class for the United States in the most recent period for which the data is available.

Illustration 5.1: Binomial Option Valuation
Illustration 5.2: Valuing an option using the Black-Scholes Model
Illustration 5.3: Valuing a short-term option with dividend adjustments – The Black Scholes Correction
Illustration 5.4: Valuing a long term option with dividend adjustments - Leaps
Illustration 5.5: Using Pseudo-American option valuation to adjust for early exercise
Illustration 5.6: Valuing a warrant with dilution
Illustration 5.7: Valuing a warrant on Avatek Corporation
Illustration 5.8: Valuing a put using put-call parity: Cisco& AT&T

Illustration 6.1: Example of an event study - Effects of Option Listing on Stock prices
Illustration 6.2: Example of a portfolio study - Price Earnings Ratios

Concept Checks
Critical Thinking

Concept Checks
Critical Thinking

Illustration 8.1: Estimating a Regression Beta for Boeing
Illustration 8.2: Estimating a Beta for Titan Cements
Illustration 8.3: Effects of Leverage on betas: Boeing
Illustration 8.4: Estimating a Bottom-up Beta for Vans Shoes – January 2001
Illustration 8.5: Estimating a Bottom-up Beta for Boeing: September 2000
Illustration 8.6: Estimating a Bottom-up Beta for Titan Cements – January 2000
Illustration 8.7: Beta of a Firm After an Acquisition: Boeing and McDonnell Douglas
Illustration 8.8: Estimating Accounting Betas ––Defense Division of Boeing - 1995
Illustration 8.9: Estimating the Cost of Equity for Boeing – June 2000
Illustration 8.10: Estimating the Cost of Equity for Embraer – March 2001
Illustration 8.11: Estimating the Cost of Debt: Boeing in December 2000
Illustration 8.12: Estimating the Cost of Debt: Embraer in March 2001
Illustration 8.13: Calculating the Cost Of Preferred Stock: General Motors Co.
Illustration 8.14: Breaking down a convertible bond into debt and equity components: Amazon Inc
Illustration 8.15: The Debt Value of Operating Leases: Boeing in December 2000
Illustration 8.16: Difference between market value and book value debt ratios – Boeing in June 2000
Illustration 8.17: Estimating Cost of Capital - Boeing
Illustration 8.18: Estimating Cost of Capital – Embraer in January 2001

1. What should be in my market value of equity?

Illustration 9.1: Updated Earnings for Ariba: June 2000
Illustration 9.2: Capitalizing R&D expenses: Amgen in March 2001
Illustration 9.3: Should you capitalize SG&A expense? Analyzing Amazon.com and America Online
Illustration 9.4: Capitalizing Recruitment and Training Expenses: Cyber Health Consulting
Illustration 9.5: Adjusting Operating Income for Operating Leases: The Gap in 2001
Illustration 9.6: Adjusting Earnings for One-time Charges

Illustration 10.1: Effect of Tax Rate assumptions on value
Illustration 10.2: The Effect of Net Operating Loss on Value- Commerce One
Illustration 10.3: Tax Benefit from Expensing: Amgen in 2001
Illustration 10.4: Estimating Normalized Net Capital Expenditures– Reliance India
Illustration 10.5: Effect of Capitalizing R&D: Amgen
Illustration 10.6: Estimating Net Capital Expenditures: Cisco in 1999
Illustration 10.7: Working Capital versus Non-cash Working Capital – Marks and Spencer
Illustration 10.8: Estimating Non-cash Working Capital Needs – The Gap

taxrate.xls: There is a dataset on the web that summarizes average effective tax rates by industry group in the United States for the most recent quarter.
wcdata.xls: There is a dataset on the web that summarizes non-cash working capital needs by industry group in the United States for the most recent quarter.
capex.xls: Summarizes capital expenditures as a percent of depreciation, by industry group.

Illustration 11.1: Differences between Arithmetic and Geometric Averages: Motorola
Illustration 11.2: Linear and Log-linear models of growth: General Electric.
Illustration 11.3: Negative Earnings: Commerce One and Aracruz Celulose
Illustration 11.4: Cisco: Earnings Growth and Size of the Firm
Illustration 11.5: Growth in Earnings Per Share
Illustration 11.6: Growth in Net Income
Illustration 11.7: Breaking down Return on Equity
Illustration 11.8: Effects of Changing Return on Equity: Con Ed
Illustration 11.9: Measuring the Reinvestment Rate, Return on Capital and Expected Growth Rate – Embraer and Amgen
Illustration 11.10: Current, Historical Average and Industry Averages
Illustration 11.11: Estimating Expected Growth with Changing Return on Capital: Titan Cement and Motorola
Illustration 11.12: Estimating Revenues: Commerce One and Ashford
Illustration 11.13: Estimating Operating Margins: Commerce One and Ashford
Illustration 11.14: Estimated Sales to Capital Ratios: Commerce One and Ashford

Illustration 12.1: Length of High Growth Period
Illustration 12.2: Stable Growth rates and Excess Returns
Illustration 12.3: Stable Growth Inputs
Illustration 12.4: Choosing a Growth Pattern

Illustration 13.1: Value a regulated firm: Consolidated Edison in May 2001
Illustration 13.2: Value a real estate investment trust: Vornado REIT
Illustration 13.3: Valuing a firm with the two-stage dividend discount model: Procter & Gamble
Illustration 13.4: Valuing a firm with modified dividend discount mode: Procter & Gamble
Illustration 13.5: Valuing the S&P 500 using a dividend discount model: January 1, 2001
Illustration 13.6: The Value of Growth: P&G in May 2001
Illustration 13.7: Valuing with the H model: Alcatel
Illustration 13.8: Valuing with the Three-stage DDM model: Coca Cola

DDMst.xls: This spreadsheet allows you to value a stable growth firm, with stable firm characteristics (beta and retun on equity) and dividends that roughly match cash flows.
DDM2st.xls: This spreadsheet allows you to value a firm with a temporary period of high earnings followed by stable growth.
DDMH.xls: This spreadsheet allows you to use the H model to value a stock.
DDM3st.xls: This spreadsheet allows you to value a firm with a period of high growth followed by a transition period where growth declines to a stable growth rate.

Illustration 14.1: Estimating Free Cash Flows to Equity – The Home Depot and Boeing
Illustration 14.2: FCFE Stable Growth Model: Singapore Airlines
Illustration 14.3: Capital Expenditure, Depreciation and Growth Rates
Illustration 14.4: Two-Stage FCFE Model: Nestle
Illustration 14.5: Three Stage FCFE Model: Tsingtao Breweries (China)
Illustration 14.6: Comparing the DDM and FCFE Models: Coca Cola

Illustration 15.1: Valuing a firm with a stable growth FCFF Model: Tube Investments of India (TI)
Illustration 15.2: Valuing The Gap: Dealing with Operating Leases
Illustration 15.3: Valuing Amgen: Effects of R&D
Illustration 15.4: Valuing Embraer: Dealing with Country Risk
Illustration 15.5: Valuing a firm with the APV approach: Tube Investments
Illustration 15.6: WACC, Firm Value, and Leverage
Illustration 15.7: Analyzing the Capital Structure for Boeing – March 1999
Illustration 15.8: Using the Adjusted Present Value Approach to calculate Optimal Debt Ratio for Boeing in 1999

fcffginzu.xls: This spreadsheet allows you to estimate the value of a firm using the FCFF approach.
fcffvsfcfe.xls: This spreadsheet allows you to compare the equity values obtained using FCFF and FCFE models
captstr.xls: This spreadsheet allows you to compute the optimal debt ratio firm value for any firm, using the same information used for Boeing. It has updated interest coverage ratios and default spreads built in
apv.xls: This spreadsheet allows you to compute the value of a firm, with leverage, using the adjusted present value approach

Concept Checks
Critical Thinking

Illustration 17.1: Comparing PE ratios and growth rates across firms: Beverage Companies
Illustration 17.2: Revisiting the Beverage Sector: Sector Regression

Illustration 18.1: Estimating the PE ratio for a high growth firm in the two-stage model
Illustration 18.2: Estimating a Fundamental PE ratio for Procter and Gamble
Illustration 18.3: PE Ratios across time
Illustration 18.4: PE Ratios across time for the S&P 500
Illustration 18.5: PE Ratios in markets with different fundamentals
Illustration 18.6: Comparing PE ratios across markets
Illustration 18.7: An Example with Emerging Markets
Illustration 18.8: Comparing PE ratios for Global telecomm firms
Illustration 18.9: Valuing Procter and Gamble using the market regression
Illustration 18.10: Estimating the PEG ratio for a firm
Illustration 18.11: Estimating and Using the PEG ratio for Data Networking firms
Illustration 18.12: Comparing Relative PE ratios for automobile stocks– December 2000
Illustration 18.13: Analyzing Amazon using Price to Future Earnings per share
Illustration 18.14: Estimating Value to EBITDA with cross holdings
Illustration 18.15: Analyzing Value to EBITDA multiples
Illustration 18.16: Comparing the Value to EBITDA Multiple: Steel companies

Illustration 19.1: Estimating the PBV ratio for a stable firm - Volvo
Illustration 19.2: Estimating the price-book value ratio for a 'privatization' candidate - Jenapharm (Germany)
Illustration 19.3: Estimating the PBV ratio for a high growth firm in the two-stage model
Illustration 19.4: Estimating the Price/Book Value Ratio for a high growth firm using FCFE - Nestle
Illustration 19.5: Return on Equity and Price-Book Value
Illustration 19.6: Comparing Price to Book Value Ratios: Integrated Oil companies
Illustration 19.7: Valuing a private firm using the cross-sectional regression
Illustration 19.8: ROE and P/BV Ratios - The case of IBM

Illustration 20.1: Estimating the PS ratio for a high growth firm in the two-stage model
Illustration 20.2: Estimating the price to sales ratio for Unilever
Illustration 20.3: Estimating the value to sales ratio for Coca Cola
Illustration 20.4: Estimating the effect of lower margins of price-sales ratios
Illustration 20.5: Choosing between a high-margin and a low-margin strategy.
Illustration 20.6: Examining the effects of moving to a lower-margin, higher volume strategy: Philip Morris in 1993
Illustration 20.7: Valuing a brand name using value-sales ratio
Illustration 20.8: Valuing a brand name: The Coca Cola Example
Illustration 20.9: Revenue Multiples and Margins: Specialty Retailers
Illustration 20.10: Revenue Multiples and Margins: Internet Retailers
Illustration 20.11: Regression Approach – Specialty Retailers
Illustration 20.12: Regression Approach – Internet Retailers
Illustration 20.13: Valuing Cisco and Motorola using Sector and Market Regressions- July 2000
Illustration 20.14: Estimating the Value per Subscriber: Internet Portal
Illustration 20.15: Comparing Value per Site Visitor

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Illustration 21.1: Stable Growth Dividend Discount Model – Citigroup
Illustration 21.2: A High Growth Dividend Discount Model – State Bank of India
Illustration 21.3: Valuing a Non-dividend Paying Financial Service Firm – NetBank
Illustration 21.4: Excess Return Valuation – Morgan Stanley Dean Witter
Illustration 21.5: Comparing PE ratios: Insurance Companies
Illustration 21.6: Earnings Multiples for Business: Citigroup
Illustration 21.7: Price to Book Value Ratios: Investment Banks
Illustration 21.8: Valuing Subsidies and Social Investment

Illustration 22.1: Normalizing Earnings for a Firm after a Poor Year: Daimler Benz in 1995
Illustration 22.2: Valuing a cyclical firm during a recession – adjusting the growth rate: Chesapeake Corp. in early 1993
Illustration 22.3: Normalizing Earnings for a Cyclical Firm in a Recession: Historical Margin
Illustration 22.4: Valuing a Commodity company: Aracruz Celulose
Illustration 22.5: Valuing a firm with operating problems: Marks and Spencer
Illustration 22.6: Valuing a privatization – CVRD
Illustration 22.7: Adjust debt ratio over time: Hyundai
Illustration 22.8: Valuing an infrastructure firm – Global Crossing

normearn.xls: This spreadsheet allows you to normalize the earnings for a firm, using a variety of approaches
distress.xls: Estimates the probability that a firm will cease existence as a going concern - i.e. the probability of distress.

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Illustration 23.1: Commerce One: Last Financial Year versus Trailing 12 Months
Illustration 23.2: Commerce One: Estimating Revenue Growth
Illustration 23.3: Estimating Sustainable Margin and Path to Margin: Commerce One
Illustration 23.4: Estimating Reinvestment Needs: Commerce One
Illustration 23.5: Estimating Risk Parameters and Costs of Capital: Commerce One
Illustration 23.6: Estimating Firm Value: Commerce One
Illustration 23.7: Valuing Equity per Share: Commerce One
Illustration 23.8: Value Drivers for Commerce One

Illustration 24.1: Estimating Accounting Betas –– InfoSoft
Illustration 24.2: Estimating a Fundamental Beta: InfoSoft
Illustration 24.3: Estimating bottom-up betas – New York Yankees and InfoSoft
Illustration 24.4: Adjusting bottom-up beta for non-diversification
Illustration 24.5: Estimating Cost of Debt: Yankees and Infosoft
Illustration 24.6: Estimating Cost of Capital: Yankees and Infosoft
Illustration 24.7: Estimating Operating Income: Yankees and Infosoft
Illustration 24.8: Estimating Growth: Yankees and Infosoft
Illustration 24.9: Closure in Valuation and Terminal Values: Yankees and Infosoft
Illustration 24.10: Estimating the Illiquidity Discount for the New York Yankees
Illustration 24.11: Valuing InfoSoft
Illustration 24.12: Estimating a per-share value for InfoSoft
Illustration 24.13: Valuing a Private Equity Stake

Illustration 25.1: A Status Quo Valuation of Digital
Illustration 25.2: The Value of Control at Digital
Illustration 25.3: Valuing Synergy: Compaq and Digital
Illustration 25.4: Tax Benefits of writing up Asset Values after Takeover: Congoleum Inc.
Illustration 25.5: Setting the Exchange Ratio
Illustration 25.6: Valuing A Leveraged Buyout: Congoleum Inc.

synergy.xls: This spreadsheet allows you to estimate the approximate value of synergy in a merger or acquisition.
merglbo.xls: This spreadsheet allows you to evaluate the cash flows and the value of a leveraged buyout.

Illustration 26.1: Valuing an office building
Illustration 26.2: Valuing the Equity Stake in a building
Illustration 26.3: Valuing a property based upon comparables
Illustration 26.4: Regression Approach

Illustration 27.1: Valuing a New York City Cab Medallion: June 1994
Illustration 27.2: Valuing a dental practice
Illustration 27.3: Valuing a five-star restaurant – Lutece in 1994
Illustration 27.4: Valuing the Copyright on “Investment Valuation”

Illustration 28.1: Valuing the Option to Delay a Project
Illustration 28.2: Valuing a Patent: Avonex in 1997
Illustration 28.3: Valuing Biog en as a firm
Illustration 28.4: Valuing an Oil Reserve
Illustration 28.5: Valuing an oil company - Gulf Oil in 1984

delay.xls: Estimate the value of an option to delay an investment.
product.xls: Estimate the value of a patent.
natres.xls: Estimate the value of an undeveloped natural resource reserve.

Illustration 29.1: Valuing an Option to Expand: Ambev and Guarana
Illustration 29.2: Considering the value of the option to expand
Illustration 29.3: Valuing Financial Flexibility at the Home Depot
Illustration 29.4: Valuing an Option to Abandon: Airbus and Lear Aircraft

expand.xls: This spreadsheet allows you to estimate the value of the option to expand a project to cover new markets or new products, using the Black-Scholes model.
abandon.xls: Estimate the value of the option to abandon an investment.
finflex.xls: Estimate the value of financial flexibility as an option.

Illustration 30.1: Valuing Equity as an Option
Illustration 30.2: Firm Value and Equity Value
Illustration 30.3: Equity Value and Volatility
Illustration 30.4: Probabilities of default and Default Spreads
Illustration 30.5: Valuing Equity as an option – Eurotunnel in 1997 (DCF valuation)

Illustration 31.1: Potential for value creation from divestiture: Boeing
Illustration 31.2: Operating Margin Comparisons
Illustration 31.3: Tax Burden and Valuation
Illustration 31.4: Non-Cash Working Capital: The Home Depot
Illustration 31.5: Reinvestment Rates, Return on Capital and Value
Illustration 31.6: Revenue Growth, Operating Margins and Sales to Capital Ratios
Illustration 31.7: Potential for Increasing the Length of the High Growth Period: Cisco & Motorola
Illustration 31.8: The Effect of Financing Mix on Value
Illustration 31.9: A Value Enhancement Plan

cfbasics.xls: There is a dataset on the web that summarizes operating margins, tax rates and non-cash working capital as a percent of revenues by industry group for the United States.
fundgrEB.xls: There is a dataset on the web that summarizes returns on capital and reinvestment rates by industry group for the United States.
wacc.xls: There is a dataset on the web that summarizes debt ratios and costs of capital by industry group for the United States.

Illustration 32.1: Discounted Cashflow Value and Economic Value Added
Illustration 32.2: An EVA Valuation of Boeing - 1998

Illustration 33.1: Valuing a straight bond at issue
Illustration 33.2: Valuing a seasoned straight bond
Illustration 33.3: Estimating durations for coupon bonds
Illustration 33.4: Yields to Maturity and Spot Rates
Illustration 33.5: Spot Rates and Forward Rates
Illustration 33.6: Valuing a conversion option / convertible bond
Illustration 33.7: Estimating yields to maturity and call on a callable bond
Illustration 33.8: Valuing a callable bond
Illustration 33.9: Valuing a 2-year Cap/Floor on 6 Month LIBOR

bondval.xls: Estimates the value of a straight bond
convbond.xls: Estimates the value of a convertible bond

Illustration 34.1: Futures versus Forward Contracts - Gold Futures Contract
Illustration 34.2: Calculating Equity and Maintenance Margins
Illustration 34.3: Calculation Conversion Factors for T.Bond futures

commfuture.xls: Estimates fair price for a storable commodity future
finfuture.xls: Estimate fair price for stock index future