In this session, we started class by completing the discussion of pricing and real options, at least in a big picture sense. We then began our intrinsic value discussion by talking about the weapons of mass distraction. If you want to read the blog post I have on the topic, try this link:
http://aswathdamodaran.blogspot.com/2...
We then spent some time setting up the process of discounted cash flow valuation, arguing for consistency in discounting. If the cash flows that you are discounting are cash flows to equity, estimated either as dividends or as potential dividends, the discount rate should be the cost of equity. If the cash flows that you are discounting are predebt cash flows, i.e,, cash flows to the firm, the discount rate has to be the cost of capital. Done right, the value of equity should be equivalent with both approaches. Try the weekly challenge that I will send out next session, if you do not believe me.
Start of the class test: https://pages.stern.nyu.edu/~adamodar...
Slides: https://pages.stern.nyu.edu/~adamodar... & https://pages.stern.nyu.edu/~adamodar...
Post class test: https://pages.stern.nyu.edu/~adamodar...
Post class test: https://pages.stern.nyu.edu/~adamodar...