분야
docxⅠ. Summary
- Background
- Brief analysis result & recommendation
Ⅱ. Analysis & Valuation process
- Cost of equity
- 2008~2021 FCFE forecasting
- After 2022 FCFE forecasting
- Result (PV of the share)
Ⅲ. Other Possibilities analysis (Scenario analysis)
- Scenario 1: Turn around after 3 years
- Scenario 2: Turn around after 3 years & High growth 12%
- Scenario 3: Turn around after 3 years & High growth 20%
Ⅳ. Conclusion
Ⅴ. Exhibit & Table data
Cost of Equity
The cost of equity is a key ingredient of every discounted cash flow model. It is difficult to estimate because it is an implicit cost and can vary widely across different investors in the same company.
① Risk Free Rate
There can be no default risk, which generally implies that the security has to be issued by a government. Note, though, that not all governments are default free. There are many countries that are estimated by the superlative degree, and we usually think US is a non-default country. In this case, we use the US T-bond rate as a risk-free rate.
② Market Risk Premium
The most common approach to estimating the risk premium used in financial asset pricing models is to base them on historical data. When we choose to use historical premium, we had better go back as far as we can. In addition, we must be consistent in the use of the risk free rate and we use the geometric risk premium, so in this case, we use long-term T-bond risk premium as a MRP.
③ Beta
The beta of a firm is determined by three variables: (1)The type of business or business the firm is in (2)the degree of operating leverage in the firm, and (3)the firm’s financial leverage. It is difficult to get information on fixed and variable costs, so we tend to assume that the operating leverage of firms within a business are similar and use the same unlevered beta for every firm. We use bottom-up beta that reflects firm’s financial leverage.
④ Lambda & Country risk premium
A lambda is about company exposure to country risk. There are three ways for estimating lambda: (1)source of revenues (2)manufacturing facilities (3)use of risk management products. We choose to use the first one; source of revenue.
Samsung SDI is a Korea company but we use risk free rate and risk premium as US T-bond, so we must adjust cost of equity by using country risk premium.
⑤ Three ways about estimating Ke
(1)Ke = Rf + β*MRP + CRP
(2)Ke = Rf + β*(MRP + CRP)
