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I am wondering if you can help validate whether the approach below is sound. The copy-and-paste function does not properly align the #s, but basically i simply multiply averageinvested capital for each year * (ROIC-Cost of Capital). That product is EVA for that year. Then I discount that year's EVA appropriately. Finally, I sum the discounted EVAs for 20-25 years. By comparing the value-created (i.e. the sum of discounted EVAs) to the starting book value, i arrive at what the theoretical market (or price) to book value should be.
Does this appear to be a logical approach? Am I missing something? Is there a more logical or simpler approach?
Thank you.
Discounted EVA 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Year 1 2 3 4 5 6 7 8 9 10 11
Invested Capital 9,292 10,602 11,895 13,174 14,444 15,661 16,744 17,724 18,687 19,660 20,647
ROIC 8.5% 8.5% 8.5% 8.5% 8.5% 8.5% 8.5% 8.5% 8.5% 8.5% 8.5%
Cost of capital 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0%
EVA 232 113 125 138 151 162 172 182 192 202 211
Discounted EVA 219 100 105 109 113 115 115 114 113 113 111
Aggregate value creation: 2219 ==> series extends to 2029 ====> Read More