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MOD 9:

MOD 9:. Valuation of Equity. Lauren Walaszczyk. Quick Background. Headquarter: Tokyo, Japan IFRS Accounting Products (enterprise activities) New/Used Cars Motorcycles Boats Financial Services Brands Acura America generates the most revenue and manufactures the highest volume of cars.

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MOD 9:

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  1. MOD 9: Valuation of Equity Lauren Walaszczyk

  2. Quick Background • Headquarter: Tokyo, Japan • IFRS Accounting • Products (enterprise activities) • New/Used Cars • Motorcycles • Boats • Financial Services • Brands • Acura • America generates the most revenue and manufactures the highest volume of cars

  3. Value of Equity • Vent – Vd = Veq

  4. Analysts’ Forecasts – Value Line

  5. Earnings per share g = 7.25% • Dividends per share g = 5.37%

  6. Equity Valuation Using Dividend Discount Model • Current Price - $ 36.70 • Translated at current exchange rate - ¥ 3,729 • Tokyo Stock Exchange - ¥ 3,536

  7. Equity Valuation Using Residual Income Model • Lower than the dividend discount model • lower than the current price of ¥ 3,729

  8. Growth in Residual Value • Setting value of equity equal to current price ¥ 3,729 • Solving for growth of continuing value • Residual income is negative • The REI calculated using my assumptions is also negative

  9. Long-term Growth in Earning/Sales • G of residual income = 22% • My calculated forecasted sales = 4.0%

  10. Sensitivity Analysis • Current market Value of Honda = ¥ 6,403,696 • Starting point: 9.61% WACC, 4% growth = ¥ 6,258,778 • To stay consistent with original estimation  changed NEA if lower than 2013’s NEA Buy Sell

  11. Conclusion • Seems that the analyst forecasts and mine were similar • More assuring • The residual income may need to be looked at closer • Market value has been steadily decreasing towards the forecasted enterprise value

  12. QUESTIONS?

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