Contents
PART
1
VALUE
13
Topic 1. Asset valuation models
15
Exercise 1:
Cost of equity using the CAPM method ..................................................................................15
Exercise 2:
Cost of equity using the CAPM method
– Cost of capital - Project profitability .....................................................................................15
Exercise 3:
Market capitalization
– Cost of equity using CAPM method - Cost of capital.......................................................16
Exercise 4:
Leverage
– Cost of equity using CAPM method - Cost of capital.......................................................17
Exercise 5:
Present value of a bond
– Cost of equity using the CAPM method - Cost of capital................................................18
Exercise 6:
Debt-free beta
– Cost of equity using CAPM method - Cost of capital.......................................................19
Exercise 7:
Project-specific beta
– Cost of equity using CAPM method - Cost of capital.......................................................20
Exercise 8:
Debt beta
– Cost of equity using CAPM method - Cost of capital.......................................................21
Topic 2. Portfolio profitability and risk
Exercise 9:
23
Share profitability and associated risk ....................................................................................23
Exercise 10: Stock prices - Share profitability and associated risk ...........................................................24
Exercise 11: Share profitability and associated risk in a random future ..................................................25
Exercise 12: Profitability and risk of a portfolio made up of several equities
in an uncertain future ...................................................................................................................26
Exercise 13: Minimizing the risk associated with a portfolio of several stocks .....................................27
5
Exercise 14: Calculating the beta of a stock ....................................................................................................28
Exercise 15: Calculating the beta of a random-future stock.........................................................................29
Exercise 16: Share management..........................................................................................................................30
Exercise 17: Market profitability - Profitability of a stock .............................................................................31
Exercise 18: Equities - CAC 40 .............................................................................................................................32
Exercise 19: Portfolio management ....................................................................................................................34
Theme 3. Evaluation of actions
37
Exercise 20: Value of a share - Constant dividends .......................................................................................37
Exercise 21: Share value - Constant dividend growth ...................................................................................37
Exercise 22: Share value - Multiple dividend growth .....................................................................................38
Exercise 23: Share value - Multiple dividend growth .....................................................................................38
Exercise 24: Dividend growth rate - Value of a share ....................................................................................39
Exercise 25: Financial investments - Option value - Binomial model........................................................40
Exercise 26: Financial investments - Option value - Black & Scholes model .........................................42
Exercise 27: Calculation of call and put by the binomial model as a function of
investor expectations ...................................................................................................................43
Exercise 28: Managing options ............................................................................................................................45
Exercise 29: Managing options ............................................................................................................................46
Topic 4. Bond valuation
49
Exercise 30: Value of a bond at issue................................................................................................................49
Exercise 31: Accrued interest and value of a bond at any date .................................................................50
Exercise 32: Value of a bond after coupon payment .....................................................................................50
Exercise 33: Calculation of the TRAB - Value of a bond at maturity and at any date ............................51
Exercise 34: Choosing between several bonds...............................................................................................53
Exercise 35: Duration and sensitivity of a bond issue ..................................................................................55
Exercise 36: TRAB - Bond value - Duration and sensitivity..........................................................................57
6
Exercise 37: TRAB - Choosing between several bonds ................................................................................59
PART
2
IN-DEPTH DIAGNOSIS
Topic 5. Financial analysis of consolidated financial statements
63
65
Exercise 38: Economic profitability.....................................................................................................................65
Exercise 39: Profitability - Profitability - Indebtedness - Cash flow ...........................................................67
Exercise 40: Economic profitability and financial profitability - Cost of capital .....................................72
Topic 6. Non-financial analysis
79
Exercise 41: Calculating EVA ...............................................................................................................................79
Exercise 42: Value creation - Maximum debt ratio .........................................................................................80
Exercise 43: Scoring................................................................................................................................................81
Exercise 44: Rating agencies ................................................................................................................................84
Exercise 45: Corporate governance ....................................................................................................................85
PART
3
COMPANY VALUATION
Topic 7. Valuation by flow
87
89
Exercise 46: Valuation of a company using the DCF method ......................................................................89
Exercise 47: Stock beta - Terminal value - NFF growth rate.........................................................................90
Exercise 48: Valuation of a company using the DCF method ......................................................................91
Exercise 49: Valuation of a company using the DCF method ......................................................................93
Exercise 50: Valuation of a company using the DCF method ......................................................................94
Exercise 51: Valuation of a company using the DCF method - Consolidated financial statements..96
Exercise 52: Business beta - Stock beta - Cost of capital
– Valuation of a company using the DCF method ................................................................97
Exercise 53: Stock beta - Cost of capital
– Company valuation using the DCF method - Financial diagnosis .............................100
7
Topic 8. Comparative evaluation
109
Exercise 54: Valuation of a company using the comparable multiples method ...................................109
Exercise 55: Cost of capital
– Valuation of a company using the comparable multiples method ............................111
Exercise 56:
Valuation of a company using the comparable multiples method ...............................112
Exercise 57:
Valuation of a company using the comparable multiples method ...............................114
Theme 9. Heritage approach
PART
4
117
Exercise 58:
Valuing a company using the asset approach ...................................................................117
Exercise 59:
Valuing a company using the asset approach - CPNE - Goodwill................................119
INVESTMENT AND FINANCING
Theme 10: Investment and divestment
123
125
Exercise 60: Investment selection criteria.......................................................................................................125
Exercise 61: Global criteria .................................................................................................................................126
Exercise 62: Choosing between several projects .........................................................................................127
Exercise 63: Choosing between several investment projects of different durations..........................128
Exercise 64: Project profitability - Minimum selling price ..........................................................................129
Exercise 65: Financial break-even point - Project-specific cost of capital .............................................130
Exercise 66: Opportunity cost - Profitability of an investment .................................................................133
Exercise 67: Investment project with an uncertain future ..........................................................................135
Exercise 68: Game theory ....................................................................................................................................137
Exercise 69: Decision trees .................................................................................................................................138
Exercise 70: Option to defer an investment project .....................................................................................139
Exercise 71: Option to expand an investment project.................................................................................141
8
Topic 11. Financing methods and choice of financing structure
143
Exercise 72: Value of a share after a simultaneous double capital increase..................................143
Fiscal 73: Successive capital increase ........................................................................................................145
Exercise 74: Choice of financing method
– Cost of debt and lease financing......................................................................................146
FY 75: Cost of bond financing........................................................................................................................149
Exercise 76: Market capitalization - Undivided loan
– Bond issue - Capital increase............................................................................................151
Exercise 77: WACC - Profitability and financing of an investment project ...........................................154
Fiscal 78: Bonds convertible into shares .......................................................................................................158
Exercise 79: Capital valuation using the Black & Sholes model ..............................................................159
PART
5
THE TREASURY
Topic 12. Foreign exchange risk management
161
163
Exercise 80: Foreign exchange position - Forward contract
– Optional forward contract...................................................................................................163
Fiscal 81: Export - Hedging instruments - Optional forward contract ....................................................166
Exercise 82: Exporter - Firm forward contract - Optional forward contract ...................................168
Exercise 83: Exporter - Firm forward contract - Optional forward contract ...................................170
Exercise 84: Importer - Foreign exchange position - Forward contract
– Optional futures contract - European option...............................................................171
Exercise 85: Foreign exchange position - Forward contract - Optional contract.........................173
Exercise 86: Foreign exchange positions - Types of hedging on options markets ............................175
Exercise 87: Forward contract - Optional forward contract .................................................................178
Exercise 88: Issue of a commercial paper ......................................................................................................180
Exercise 89: Futures - Options - Warrants......................................................................................................181
Exercise 90: Simple option strategies for hedging currency risk ............................................................183
9
Topic 13. Interest rate risk management
185
Fiscal 91: Purchase of long-term interest rate contracts ............................................................................185
Fiscal 92: Sale of long-term interest rate contracts ......................................................................................186
Fiscal 93: Sale of short-rate contracts .............................................................................................................188
Fiscal 94: Sale of long rate contracts - Sale of short rate contracts........................................................189
Exercise 95: Euro Bund contract .......................................................................................................................191
Fiscal 96: Investment of cash surpluses - Optional contract ....................................................................193
Fiscal 97: Forward Forwart contract Borrowing
– Minimum rate offered by the bank.......................................................................................194
Fiscal 98: Sale of Forward Rate Agreement contracts.................................................................................194
Fiscal 99: Purchase of Forward Rate Agreement contracts.......................................................................195
Exercise 100: Variable-rate loan - Purchase of a CAP.................................................................................196
Fiscal 101: Variable-rate loan - Purchase of a FLOOR ................................................................................197
Exercise 102: Variable-rate loan
– Purchase of a CAP and sale of a FLOOR (COLLAR)......................................................198
Exercise 103: Interest rate swap ........................................................................................................................199
Exercise 104: Centralized cash management.................................................................................................200
PART
6
FINANCIAL ENGINEERING
Topic 14. Dividend policy
203
205
Exercise 105: Proposed income appropriation - Dividend calculation ...................................................205
Exercise 106: Dividend growth rate
and profitability of an investment project.............................................................................207
Exercise 107: Dividend payout ratio - Purchase price of a share.............................................................208
Exercise 108: Dividend policy.............................................................................................................................209
10
Topic 15. Share value management
211
Fiscal 109: Share buybacks .................................................................................................................................211
Fiscal 110: Contribution of assets.....................................................................................................................212
Fiscal year 111: Share buybacks.........................................................................................................................213
Fiscal 112: Public stock buyback tender offer...............................................................................................214
Exercise 113: Initial public offering ...................................................................................................................216
Topic 16. Mergers - Acquisitions
219
Exercise 114: Profitability of a merger operation..........................................................................................219
FY 115: Post-merger earnings per share (EPS) ............................................................................................220
Exercise 116: Profitability of a merger operation..........................................................................................221
Fiscal 117: Earnings per share after a merger
– Control premium and synergy effects................................................................................222
Exercise 118: Post-merger share value - Consequences of the merger.................................................224
Exercise 119: Leverage Buy Out structure......................................................................................................226
Exercise 120: Business valuation - Takeover bid - Business plan ...........................................................231
11
PART 1
VALUE
13