Valuation of Kia Motors

2358 Words10 Pages
Düsseldorf Business School at the Heinrich-Heine-University
Value Management & Cost Management
Prof. Dr. Klaus-Peter Franz

Valuation of a company KIA MOTORS

By: Youngsook Kwon, Date: Jan 30, 2013

Table of Contents

1. Introduction 1 2. Valuation Methodology 2 2.1. Discounted Cash Flow 2 2.2. Terminal Value 3 2.3. Weighted Average Cost of Capital 3 2.3.1 Cost of Equity 4 2.3.2 Cost of Debt 4 2.4. Free Cash Flow 4 3. Calculation of WACC for Kia motors 5 4. Calculation of Free Cash Flow for Kia motors 5 5. Estimation of the value for Kia motors at the end of 2011 6 6. Conclusion 6 References 7 Appendix -1 8
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In particular, small changes in inputs can result in large changes in the value of a company, given the need to project cash-flow to infinity. James Montier argues that, "while the algebra of DCF is simple, neat and compelling, the implementation becomes a minefield of problems". He cites, in particular, problems with estimating cash flows and estimating discount rates. Despite the issues, DCF analysis is very widely used and is perhaps the primary valuation tool amongst the financial analyst community.

2.2. Terminal Value

Terminal Value, in simple term, is the value of a company with an infinite row of constant future cash flows.
To arrive at a total company value, or enterprise value, we simply have to take the present value of the cash flows and the Terminal value, divide them by the discount rate and, finally, add up the results. If we are discounting free cash flow of the firm at the weighted average cost of capital, this would give the value of the firm, so it would be necessary to deduct net debt in order to arrive at the equity value. In this report, simply use FCF in the year of 2011 to compare the value of the firm to the stock price in the year end of 2011.

2.3. Weighted Average Cost of Capital

The Weighted Average Cost of Capital (WACC) is the discount rate used in a Discounted Cash Flow (DCF) analysis to present value projected free cash flows and terminal value.
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