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CHAPTER 16: Estimating Equity Value per Share

CHAPTER 16

Estimating Equity Value per Share

Chapter 15 considered how best to estimate the value of the operating assets of the firm. To get from that value to the firm value, you have to consider the value of cash, marketable securities, and other nonoperating assets held by a firm. In particular, you have to value holdings in other firms and deal with a variety of accounting techniques used to record such holdings. To get from firm value to equity value, you have to determine the value of the nonequity claims in the firm that have to be netted out.

Once you have valued the equity in a firm, it may appear to be a relatively simple exercise to estimate the value per share. It seems that all you need to do is divide the value of the equity by the number of shares outstanding. But, in the case of some firms, even this simple exercise can become complicated by the presence of management and employee options. This chapter discusses the magnitude of this option overhang on valuation and then considers ways of incorporating the effect into the value per share.


  

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