Five questions (merger premiums, capex, leveraged beta, etc.)
1. Do merger of equals usually have premiums paid close to zero? 2. Page 41, to calculate Unlevered Free Cash Flow, it is used net capital expenditure, but to calculate Unlevered Free Cash Flow in the Hilb, Rogal & Hamilton case, it is used capital expenditure instead. Why? 3. When do you use... 1. Do merger of equals usually have premiums paid close to zero?

2. Page 41, to calculate Unlevered Free Cash Flow, it is used net capital expenditure, but to calculate Unlevered Free Cash Flow in the Hilb, Rogal & Hamilton case, it is used capital expenditure instead. Why?

3. When do you use beta and adjusted beta? In Module Finance 101, there is a reference to Beta for the CAPM calculation. But in the WalMart valuation exercise, Adjusted Beta is used instead of Beta.

4. Can you please explain again, why the WalMart DDM results are off compare to trading comps, DCF and WMT current?

5. In the Hilb, Rogal & Hamilton case, in the DCF Analysis excel sheet, can you please explain the labels formula, Cell B10 & A18? Read More

DCF Analysis: Using Tax-Effected EBIT as Perpetuity in the Perpetuity Growth Method (PGM) to calculate Terminal Value
I have recently purchased Packages 3, 4, 5, 6, Private Company Valuation, and Super-Complex M&A LBO Modeling self-study courses to refresh my skill-sets. FYI, I have been an M&A investment banker and senior Corporate Development professional for many years. In my experience with DCF Analysis, t... I have recently purchased Packages 3, 4, 5, 6, Private Company Valuation, and Super-Complex M&A LBO Modeling self-study courses to refresh my skill-sets. FYI, I have been an M&A investment banker and senior Corporate Development professional for many years.

In my experience with DCF Analysis, the PGM calculates terminal value by treating a company's terminal year Unlevered Free Cash Flow (FCF) as a perpetuity growing at an assumed rate.

However, in you DCF Analysis video presentation, you use a company's terminal year Tax-Effected EBIT as a perpetuity. I wonder why? and would like to learn the rationale behind it.

You mention in the video one should consult with the "related modules" for explanation as to why this this is the case (i.e. choosing Tax-Effected EBIT ). Since none of the six self-study packages I have purchased contains the "related modules" ==> I wonder and would appreciate it very much if you would be kind enough to share with me why you think Tax-Effected EBIT is a better perpetuity in the PGM to determine terminal value.

Thank you very much in advance for your assistance in this matter. I look forward to your reply.



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Advanced Excel for Data Analysis Course Questions
1) I am working off a version of Windows Excel 2016. Do you know what the home key shortcut is? "Fn" does not and work neither does "alt +h." 2) For Excel 2016 In the Pivot Tables Section, when I get to step 3 out of 3 to set up the table, excel doesn't give me the option of clicking layout (it'... 1) I am working off a version of Windows Excel 2016. Do you know what the home key shortcut is? "Fn" does not and work neither does "alt +h."

2) For Excel 2016 In the Pivot Tables Section, when I get to step 3 out of 3 to set up the table, excel doesn't give me the option of clicking layout (it's greyed out). It only gives me the option to his cancel, back or finish. I'm forced to click "finish" but when I try to follow Hamilton's instructions on how to make the correct layout, the table ends up looking funky. It does not format properly and the correct results do not show. Do you have any recommendations on how to remedy this?

3) I am getting the hang of anchoring but haven't gotten it down pat yet. And we use it a lot. Is there an anchoring cheat sheet you can provide for how many times to hit the "home" key for locking in columns, rows, or both columns and rows? And definitions for the different locking types? Read More

Re: Marginal Interest Rate (A/D Analysis example)
The marginal interest rate is the marginal rate of borrowing, not the savings/treasury rate. The latter can be used for interest income rate, but not for debt borrowing in an M&A deal. We would use the weighted average YTM of existing debt of the acquiror as the best initial proxy.

Re: Using book value in Residual Income
You are correct on all three counts and truth be told we're a bit embarrassed by the multiple lapses on this analysis. Ummm... in our defense, "no one" uses Residual Income approach and it's highly academic...? :-) We're not trying to skirt away here - we take full responsibility for not getting it... You are correct on all three counts and truth be told we're a bit embarrassed by the multiple lapses on this analysis. Ummm... in our defense, "no one" uses Residual Income approach and it's highly academic...? :-) We're not trying to skirt away here - we take full responsibility for not getting it correct and thank you for bringing it to our attention - and we did need a bit of time to look into your observations.

Detailed response to your items (let this post serve as official ERRATA notice as well for this module):

1) Yes, indeed current book value (last known actual book value, in this case, last year's book value). We would definitely bring in 2005 book value from the BS of the Core Model into cell H12, we would then make H12 white and add it as a third component to K25 and L25 for the Equity Value range. We would not use cell I12 since that is a projection and this analysis is dated as of end of 2005 (or beginning of 2005) so we should use Year 0 as the base figure and not Year 1.

2) Equity charges should also be corrected as you mentioned to using PY (prior year) book value. I14 indeed would be based on H12 and not I12 and then copied to the right. We would avoid altering row 12 for two reasons: (i) BS figures are always ending balance unless otherwise noted; and (ii) for #1 above, we need Year 0 (2005) ending book value figure.

3) Here we would agree with you that Price to Book is an acceptable terminal value calculation approach for Residual Income approach to valuation. There is clearly a relationship with book value; however we wouldn't automatically rule out Gordon Growth either - just like a "regular" DCF analysis, we would include multiple approaches, such as TEV/EBITDA and Gordon Growth. You can totally decide to place emphasis and priority on P/B - we wouldn't argue against that logic.

In terms of selecting what premium to book value, you selected 1.5x - 2.5x ? however, WMT's Market Cap at the time of the analysis is about $190B (either from the Trading Statistics tab from Package 2 or from Complex Trading Comps in Package 4), and their PY book value is about $53B (as you noted in your original post), giving a P/B of about 3.5x. Therefore, we would want to spend more time justifying the P/B multiple either by comps or historical average.

Thank you very much for catching these errors and for taking the time to post them for the benefit of the community! Read More