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Equity investmentResidual Income ValuationContact Us: PristineCFA
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#arrant t!e accuracy or quality o& t!e products or services
o'ered $y (ristine%)earn t!e &ollo#ing in t!is s!eet*+ Valuing
common stoc" using t!e t#o and multiple periods residual income
approac!Visit www.edupristine.com to do#nload more spreads!eets
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[email protected] CFA Open Workbook SeriesMaster CFA
Concepts Using MS Excel Equity investmentResidual Income
ValuationCFA Institute does not endorse, promote, or #arrant t!e
accuracy or quality o& t!e products or services o'ered $y
(ristine%)earn t!e &ollo#ing in t!is s!eet*Valuing common stoc"
using t!e t#o and multiple periods residual income
www.edupristine.com to do#nload more spreads!eets &rom our Xcel
in[Text to come ! Workbook Series Question,-% .ased on t!e data
given, /o$in0s , &or Veron )td is closest to*OptionsA%
-%---%12C% 1%34,5% .ased on t!e &undamentals given, Ultra )td0s
6usti7ed (8. is closest to*OptionsA% 55%94C% :,:% .ased on
multistage residual income model, intrinsic value o& Cloda
Motors, using Randy0s estimate o& persistence &actor is
closest to*OptionsA% ;run average level and t!e price>to>$oo"
ratio #ill approac! -%3%Randy didnCt li"e t!e #ay Ro$ert responded%
In order to get $ac" to !im, !e c!allenged t!e valuation o&
Eadinto )td, !eld $y Ro$ert% It #as valued at ;93 using t!e
residual income model% Randy claimed t!at inventory !as $een valued
using )IFB #!ile as per t!e standards FIFB met!od s!ould !ave $een
adopted% So, !e s!ould !ave ta"en )IFB reserve into consideration
#!ile ma"ing suita$le ad6ustments%RealiDing t!at situation could go
out o& proportion, senior management too" t!e c!arge and #arned
$ot! o& t!em &rom indulging into suc! inappropriate
$e!aviour% In t!e same meeting, Mic!ael Fayne, a ne# recruit,
presented !is updates &or t!e 7rst time% =e made &ollo#ing
statementsStatement -*I plan to adopt GGM &or valuing mar"et
indicesStatement 5*I plan to adopt residual income model &or
t!e 7rms #!ic! !old clean surplus relation and !ave volatile cas!
Ho#s%,@% C!ange in intrinsic value o& Cloda Motors, using
Ro$ert0s estimate o& persistence &actor and (8. ratio as
compared to Randy0s estimate, is closest to*,3% Assuming positive
c!ange in )IFB reserve, impact o& )IFB reserve ad6ustments on
residual income valuation o& Eadinto )td is*"eron #td.oo" value
o& equity I; millionJ.oo" value o& de$t I; millionJMar"et
value o& de$t I; millionJReplacement cost o& assets I;
millionJ RCEo% o& outstanding s!ares ImillionJ ECurrent (rice
I;J$ltr% #tdRequired return on equity rExpected return on equity
RBEGividend payout ratio ->$Clod% &otorsCurrent $oo" value
per s!are I;JGividend payout ratio ->$Expected return on equity
RBEGuration o& !ig!>gro#t! period IyrsJ /Required return on
equity r(ersistence &actor IRandy0s estimateJ #Expected (8.
ratio, a&ter 3 years IRo$ert0s estimateJ.E.GMG(1.1(38.3"eron
#td
