Chapter 10
VALUATION IN PRACTICE
Material from ENTREPRENEURIAL FINANCE: STRATEGY, VALUATION, AND DEAL STRUCTURE, by Janet Kiholm Smith, Richard L. Smith, and Richard T. Bliss, © by Stanford University, all rights
,reserved. Instructors may make copies of PowerPoint Presentation contained herein for classroom distribution only. Any further reproduction, distribution, or use of this material, in any way or
by any means, is strictly prohibited without the prior written permission of the publisher.
, Learning Objectives
• Articulate the criteria for selecting a valuation model
• Use the relative value approach to estimate
the continuing value of a new venture
• Identify and collect the information needed
to implement a new venture DCF valuation
• Estimate the components of a new venture’s beta
• Estimate the opportunity cost of capital for a venture
• Recognize and use shortcuts in the valuation process
• Implement the primary valuation approaches:
– DCF by the RADR and CEQ forms of the CAPM
– Relative Value
– Venture Capital method
– First Chicago method
2
, Criteria for Selecting a New Venture
Valuation Method
• Is the valuation based on expected future cash flows?
• Is cost of capital used as the discount rate?
• Does the approach deal appropriately with cash
flows that vary in risk?
• Can the model be used to value embedded options
and complex financial claims?
• How difficult is it to estimate the information
required for the valuation?
• Is there sufficient data available to have confidence
in relative valuation estimates?
3
VALUATION IN PRACTICE
Material from ENTREPRENEURIAL FINANCE: STRATEGY, VALUATION, AND DEAL STRUCTURE, by Janet Kiholm Smith, Richard L. Smith, and Richard T. Bliss, © by Stanford University, all rights
,reserved. Instructors may make copies of PowerPoint Presentation contained herein for classroom distribution only. Any further reproduction, distribution, or use of this material, in any way or
by any means, is strictly prohibited without the prior written permission of the publisher.
, Learning Objectives
• Articulate the criteria for selecting a valuation model
• Use the relative value approach to estimate
the continuing value of a new venture
• Identify and collect the information needed
to implement a new venture DCF valuation
• Estimate the components of a new venture’s beta
• Estimate the opportunity cost of capital for a venture
• Recognize and use shortcuts in the valuation process
• Implement the primary valuation approaches:
– DCF by the RADR and CEQ forms of the CAPM
– Relative Value
– Venture Capital method
– First Chicago method
2
, Criteria for Selecting a New Venture
Valuation Method
• Is the valuation based on expected future cash flows?
• Is cost of capital used as the discount rate?
• Does the approach deal appropriately with cash
flows that vary in risk?
• Can the model be used to value embedded options
and complex financial claims?
• How difficult is it to estimate the information
required for the valuation?
• Is there sufficient data available to have confidence
in relative valuation estimates?
3
