DCF Valuation III

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Commodity companies

Commodity companies have earnings that move up and down with commodity prices. Given that fact, what would you expect the values for commodity companies to do over a commodity price cycle?a.Stay constantb.Increase (decrease) as commodity prices increase (decrease)c.Increase (decrease) as commodity prices decrease (increase)

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Financial Service companies

You are valuing a bank that is conservatively capitalized, with a regulatory capital ratio that is well above the regulatory minimum. How would you expect to see this reflected in the company’s fundamentals?a.High return on equity, low riskb.Low return on equity, low riskc.High return on equity, high riskd.Low return on equity, high risk

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Price and value

If you feel certain about your estimate of the value of a company, and it is higher than the stock price, you should be willing to put all of your money in that stock.

a. Trueb. FalseExplain.

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Forecasting in the face of uncertainty. A test:

In which of these two cities would you find it easier to forecast the weather?

Aswath Damodaran

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But the payoff is greatest where there is the most uncertainty…

Aswath Damodaran

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