A Tutorial on the Discounted Cash Flow Model for Valuation of Companies

All steps of the discounted cash flow model are outlined. Essential steps are: calculation of free cash flow, forecasting of future accounting data (income statements and balance sheets), and discounting of free cash flow. There is particular emphasis on forecasting those balance sheet items which relate to Property, Plant, and Equipment. There is an exemplifying valuation included (of a company called McKay), as an illustration. A number of other valuation models (abnormal earnings, adjusted present value, economic value added, and discounted dividends) are also discussed. Earlier versions of this working paper were entitled "A Tutorial on the McKinsey Model for Valuation of Companies".Valuation; free cash flow; discounting; accounting data

The Abnormal Earnings Growth Model: Applicability and Applications

We investigate a disaggregated version of the abnormal earnings growth (AEG) model of Ohlson and Juettner-Nauroth (2005). The value of the firm then becomes discounted free cash flows minus initial debt. Discounted free cash flows are equal to capitalized operating earnings from the initial stock of operating assets plus the present value of an infinite sequence of growth projects, where each growth project is valued by discounted economic value added. Sufficient conditions for the present value of the free cash flows to be equal to the sum of these two components are investigated. The Gordon growth formula is found to be one special case. Another case concerns lumpy growth projects with depreciation according to the annuity method. We then allow for three different interest rates, the required rate of return on equity under all-equity financing, the borrowing rate, and the required rate of return on equity under partial debt financing (the latter given by MM's Proposition 2). In the model of Ohlson and Juettner-Nauroth, these rates are the same. A firm-level model is developed that focuses on operating earnings and free cash flows with discounting at the required rate of return under all-equity financing. An equity-level model is then developed that focuses on bottom-line earnings and dividends with discounting at the required rate of return under partial debt financing. Relationships between the two models are explored. Dividend policy irrelevance holds only in a limited sense for the equity-level model.Financial analysis; abnormal earnings growth model; dividend policy; discounted dividends; discounted free cash flows; capitalized earnings; discounted economic value added

Currency Option Pricing in Credible Target Zones

This paper develops a model for valuing options on a currency which is maintained within a band. The starting point of our model is the well known Krugman model for exchange-rate behavior within a target zone. Results from model runs provide insight into evidence reported by other authors of mispricing of currency options by extensions of the Black-Scholes model.

Systems Analysis by Multilevel Methods: With Applications to Economics and Management

This book presents a survey of usable multilevel methods for modeling and solving decision problems in economics and management. The methods are largely extensions of linear programming and fall within the realm of column generation and decomposition. About one third of the book is concerned with methods and the rest describes case studies where these methods have actually been used. They are taken from areas such as national and regional economic planning, production planning, and transportation planning

Realignment Risk and Currency Option Pricing in Target Zones

This paper extends the Krugman target zone model by including a realignment mechanism. Various properties of that realignment mechanism are discussed. The movement of the exchange rate is governed both by a Wiener process on fundamental and by a Poisson jump process with endogenous realignment size. The realignment mechanism is such that (except in cases where a speculative attack occurs) no jump in fundamental is needed to accompany the jump in the exchange rate. A risk neutral valuation of currency options is constructed. Some properties of option values under realignment risk are illustrated by numerical results.

Operational Research in Education

Operational Research (OR) techniques have been applied, from the early stages of the discipline, to a wide variety of issues in education. At the government level, these include questions of what resources should be allocated to education as a whole and how these should be divided amongst the individual sectors of education and the institutions within the sectors. Another pertinent issue concerns the efficient operation of institutions, how to measure it, and whether resource allocation can be used to incentivise efficiency savings. Local governments, as well as being concerned with issues of resource allocation, may also need to make decisions regarding, for example, the creation and location of new institutions or closure of existing ones, as well as the day-to-day logistics of getting pupils to schools. Issues of concern for managers within schools and colleges include allocating the budgets, scheduling lessons and the assignment of students to courses. This survey provides an overview of the diverse problems faced by government, managers and consumers of education, and the OR techniques which have typically been applied in an effort to improve operations and provide solutions

Storängen Söderköping- en visualisering av blivande ägarlägenheter på Storängen i Söderköping

På Storängen i Söderköping bygger Bygg GG i Norrköping i samarbete med G Gunnarsons Fastighets AB ett hus innehållande 14 ägarlägenheter. Då försäljningen av lägenheterna startade innan huset var färdigt bestod den största delen av säljunderlaget av ritningar och skisser. Syftet med examensarbetet var att utföra en visualisering av det blivande husets yttre i form av en digital 3d-modell samt att visa hur några av de blivande lägenheterna skulle komma att se ut. Då många av lägenheterna i huset liknar varandra togs beslutet att visualisera tre av husets lägenheter. Rapporten beskriver hur arbetet med att ta fram visualiseringen genomförts. Den ger även en inblick i visualiseringsprocessen samt de programvaror som använts för projektet. Projektet kan delas in i två delar. En exteriör del och en interiör del. I den exteriöra delen byggdes en 3d-modell av huset i 3d-programmet Google SketchUp som är ett lättanvänt program för att skapa digitala skisser och 3d-modeller. Modellen som kopplades samman med programmet Google Earth som är en ”digital jordglob” visar hur husets yttre skulle komma att se ut. Till den interiöra delen, som var projektets huvuddel byggdes en ny modell i samma program som den tidigare modellen. Modellen exporterades till 3d-programmet Autodesk 3ds Max där texturering, ljussättning och rendering för tre av de fjorton lägenheterna i huset genomfördes. 3ds Max som är ett mer avancerat program än SketchUp, ger användaren möjligheten att göra verklighetstrogna visualiseringar. Från 3ds Max renderades totalt 36 olika bilder fram från de tre lägenheterna. Ett urval av bilderna användes senare som säljunderlag för lägenheterna