VIDEO BACKGROUND INFORMATION: Many methods can be used to estimate the value of a business. A few of the methods include: Asset Valuation: The value of the business is the sum of the fair market value of the companies assets less any liabilities acquired in the purchase. Income Method: For a small business, the valuation may be based on multiple of the company’s Revenues. For example, Revenues X 3. The multiple is based on the industry. Stock Valuation:
For public companies, the valuation may be based on the recent price investors have been willing to pay to purchase the stock. In this article, you will learn about the Discounted Cash Flows Valuation Method. REQUIRED: 1) Click on the link to the video, Valuation and Simple Discounted Cash Flows 2) Created a Word document to answer the following questions: a) What business did the author choose to use in the video to explain valuing a business?
b) The author stated that there are three key variables to using the discounted cash flows method. Describe each of the three variables 1. Size of Cash Flows: 2. Timing of Cash Flows: 3. The Discount Rate: c) What discount rate did the author indicate was commonly used? d) What is the definition of the term Terminal Value? e) What was the final maximum valuation of the business in the video? f) Do you believe the Discounted Cash Flow Valuation Method makes sense? Why or Why not? VIDEO LINK: https://www.youtube.com/watch?v=OY_UiA1EQqk
