Uploaded January 2025 | Updated September 2026, 1 week ago
We started class by completing the discussion of approaches to valuation, talking about pricing and real options, at least in a big picture sense. We then began our intrinsic value discussion by talking about the weapons of mass distraction. If you want to read the blog post I have on the topic, try this link:
aswathdamodaran.blogspot.com/2014/03/if-it-is-strategic-growth-investment-in.html
We then spent some time setting up the process of discounted cash flow valuation, arguing for consistency in discounting. If the cash flows that you are discounting are cash flows to equity, estimated either as dividends or as potential dividends, the discount rate should be the cost of equity. If the cash flows that you are discounting are pre-debt cash flows, i.e,, cash flows to the firm, the discount rate has to be the cost of capital. Done right, the value of equity should be equivalent with both approaches. We also introduced “The IT propositon’ arguing that for it (control, synergy, AI or ESG) to affect value, it has to affect either the cash flows or the discount rate.
swfinstitute.org/fund-manager-rankings/activist-investor
Start of the class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/kennecott.pdf
Slides: nyu.box.com/s/7p11ugta057amfnko6er4uaehmimi7x9
Post class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session3atest.pdf
Post class solution: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/sessio3asoln.pdf
We started class by completing the discussion of approaches to valuation, talking about pricing and real options, at least in a big picture sense. We then began our intrinsic value discussion by talking about the weapons of mass distraction. If you want to read the blog post I have on the topic, try this link:
aswathdamodaran.blogspot.com/2014/03/if-it-is-strategic-growth-investment-in.html
We then spent some time setting up the process of discounted cash flow valuation, arguing for consistency in discounting. If the cash flows that you are discounting are cash flows to equity, estimated either as dividends or as potential dividends, the discount rate should be the cost of equity. If the cash flows that you are discounting are pre-debt cash flows, i.e,, cash flows to the firm, the discount rate has to be the cost of capital. Done right, the value of equity should be equivalent with both approaches. We also introduced “The IT propositon’ arguing that for it (control, synergy, AI or ESG) to affect value, it has to affect either the cash flows or the discount rate.
swfinstitute.org/fund-manager-rankings/activist-investor
Start of the class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/kennecott.pdf
Slides: nyu.box.com/s/7p11ugta057amfnko6er4uaehmimi7x9
Post class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session3atest.pdf
Post class solution: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/sessio3asoln.pdf
