The Purpose of This Practice Exercise Is to Underscore How

question 85

Essay

The purpose of this practice exercise is to underscore how small changes in terminal value assumptions result in disproportionately large changes in firm value. Using the Excel spreadsheet model in the file folder entitled Target Valuation Model found on the companion website to this book, locate the present value of the Target's enterprise and equity values on the Valuation Worksheet and write them down. Increase the terminal value growth rate assumption by one percentage point and reduce the discount rate by one percentage point. How does this impact the firm's enterprise and equity value? Explain how this might happen (Hint: Consider the definition of the constant growth valuation model.) Click the undo command to eliminate changes to the base case model or close model but do not save the results.

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Definitions:

Albinism

A group of genetic disorders characterized by little or no production of the pigment melanin, affecting the color of the skin, hair, and eyes.

Human Karyotype

is the complete set of all the chromosomes in a human cell, typically presented as 23 pairs including one pair of sex chromosomes.

Autosomes

Chromosomes that are not directly involved in determining a person's sex; these are present in pairs in both males and females.

Gene Targeting

A genetic technique that uses homologous recombination to modify the DNA of a gene to study its function or create a desired mutation.