Scribd
Upload
15 views

Assignment 3

The document provides a grading scale that assigns letter grades from A to F based on numerical grade percentages from 91-100% down to 40% or below. It then discusses various financial valuation concepts and techniques related to valuing ventures, including how risk and growth opportunities affect P/E ratios, common methods for estimating terminal value, the differences between direct comparison and direct capitalization methods, reasons for including employee equity compensation, describing terms like "black hole", "living dead", and "venture utopia" ventures, what is meant by the "utopia discount process" for valuation, and what type of data and process would be needed to implement a five scenario expected PV valuation model.

Uploaded by

低調用戶929
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
15 views

Assignment 3

The document provides a grading scale that assigns letter grades from A to F based on numerical grade percentages from 91-100% down to 40% or below. It then discusses various financial valuation concepts and techniques related to valuing ventures, including how risk and growth opportunities affect P/E ratios, common methods for estimating terminal value, the differences between direct comparison and direct capitalization methods, reasons for including employee equity compensation, describing terms like "black hole", "living dead", and "venture utopia" ventures, what is meant by the "utopia discount process" for valuation, and what type of data and process would be needed to implement a five scenario expected PV valuation model.

Uploaded by

低調用戶929
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 3

Grades Grading Scale

A 91 – 100

A- 86 – 90

B+ 81 – 85

B 71 – 80

B- 66 – 70

C+ 61 – 65

C 51 – 60

C- 46 – 50

D 41 – 45

F <=40
How would one expect P/E ratios to vary with a venture’s risk and growth opportunities?

P/E should increase with valuable growth opportunities and decrease with risk, other
things being equal.

9. What are the common ways to estimate a terminal value for a venture?

A few common ways to estimate terminal value for a venture would be to use a P/E or
other multiple or to divide final cash flow by the cap rate (r-g).

10. What is the difference between the direct comparison method and the direct
capitalization method?

Direct comparison applies a direct comparison ratio to the related venture quantity and
need not have any discounting interpretation. Direct capitalization capitalizes earnings by
discounting using a cap rate (r-g) implied by a comparable ratio. There is a direct
discounting interpretation. Direct comparison can be used with stock variables (like
“dollars per square foot”) whereas direct capitalization is really restricted to flow
variables (like earnings, cash flow and dividends).

11. Describe two important motives for having an equity component in employee
compensation.

One reason is that the expected deferred and tax-preferred compensation allows the
venture to pay a lower current compensation, thereby lowering the current need for
external financing.

A second reason is the substantial impact it can have in motivating employees toward the
founders’ and venture investors’ shared goal of a high value for the company’s equity.

12. Describe the following terms from the perspective of venture performance: (a) black hole,
(b) living dead, and (c) venture utopia. In what sense is the typical business plan
utopian?

A black hole venture is a venture that results in a 100 percent loss to venture investors. A
living dead venture is a venture that provides minimal, if any, returns to venture investors.
A venture utopia venture is a venture that provides phenomenal returns the venture
investors.

The typical business plan is utopian because most plans forecast the high end of the
possible success spectrum. In other words, they typically are overly optimistic in their
projections.

13. What is meant by the utopia discount process? Describe how expected PV is calculated.

Utopia discount process: allows the venture investors to value their investment using
only the business plan’s explicit forecasts.

The PV is calculated by discounting utopian projections at utopian required returns


14. Discuss the type of data and the procedural changes necessary to implement a five-
scenario expected PV valuation for a venture investment.
To conduct a five scenario expected PV valuation, we would need to start with an idea
about what the five levels of possible success or failure are. To each scenario, we would
need to assign a probability (likelihood) that that scenario would be the outcome. Using a
single discount rate for all five scenarios, we would project and discount the VCFs for
each scenario. After multiplying the scenario PV by its likelihood we would sum to get
the expected PV across all five scenarios. Of course, we could just apply the probabilities
to each of the five scenarios’ periodic VCFs to get an expected cash flow and then
discount these amalgamated cash flows by the single discount rate to arrive at the same
value.

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy