Darmodaran approach to company valuation

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In this coursework I will describe Damodoran’s approach to valuation. This person has contributed a lot to valuation’s technic. He is an author of two books on Corporate Finance, Investment Management, Valuation and The Dark Side of Valuation, and his works were published in such magazines as Journal of Financial and Quantitative Analysis, The Journal of Finance, The Journal of Financial Economics и The Review of Financial Studies. In addition, he is a professor in Stern School Business in New York on MBA. Such a remarkable specialist described and contributed a lot to valuation technics whose works are used both in theory in universities and in practice among businessmen and valuation specialist.


Introduction 3
1. Basis of Valuation notions according to Damodaran 4
2. DCF model 6
2.1. DCF and notion of growth stages 6
2.2. Cost of equity 9
2.2.1 CAPM and risk premium for country risk 9
2.2.2 Implied risk premium 12
2.3 Value of equity 13
2.3.1. Dividend model 13
2.3.2. Calculation of growth rates 14
2.4. From FCFE to FCFF 17
2.4.1. Cost of capital 17
2.4.2. FCFE approach 17
2.4.3. FCFF approach 20
3. Relative Valuation 22
4. Equity as an Option 24
4.1. Definition and Application 24
4.2 Advantages and Drawbacks of the Option approach 26
Conclusion 28
Endnotes 29
Bibliography 30
Appendix 31

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