Summary: Study Cards Unit 6 Target Valuation

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• What are the 7 valuation methods from the Unit 6 slides — in order?

  1. Book value 2. Liquidation value 3. Replacement cost 4. Current market value 5. DCF 6. Trading multiples of comparable firms (CCA) 7. Transaction multiples (PTA). Plus synergy calculation as an add-on to standalone valuation.

• What is the core principle of valuation from the Unit 6 slides?

  Think like an investor. Are you better off after the transaction? Consider the intrinsic (true) value of the firm. Intrinsic value is unobservable — all methods are approximations. Always use multiple methods and triangulate to a range.

• What is the triangulation principle and why does it matter?

  No single method is reliable alone — each has weaknesses. Using DCF + trading multiples + transaction multiples simultaneously creates a valuation range. The overlap narrows uncertainty. The opening bid sits near the low end of the range; the walk-away price near the high end.

• What is the synergy value formula from the slides?

  Value of Combined Firm = Value of Bidder + Value of Target − Payment + Synergy Gains. The deal creates value for the bidder ONLY if synergy gains exceed the premium paid. If synergies are overestimated or integration fails, the deal destroys bidder value.

• What is examinable in Unit 6 according to Gillian's email?

  "You would not be expected to calculate values using DCF or other valuation models. However, you may be asked to discuss the advantages/disadvantages of the various valuation models discussed in this course topic." No maths — narrative only.

• What is the 2021-22 Q3 question wording?

  "What are the methods available that can be used to value a target firm? Critically discuss the strengths and weaknesses of these alternate methods." A full 33% question. Breadth matters — list all 7, then go deep on DCF and multiples.

• What is Book Value?

  The accounting value of the firm's assets as recorded in the balance sheet. Uses historical cost minus depreciation — not market value or future potential.

• What are the advantages of Book Value?

  1. Data easily and publicly available. 2. Simple and straightforward. 3. Useful for firms with mainly tangible assets and low growth (e.g. manufacturing, utilities).

• What are the disadvantages of Book Value?

  1. Ignores intangible assets — massively undervalues tech or pharma firms. 2. Ignores growth prospects entirely. 3. Not consistent with "think like an investor." 4. Cross-border: different accounting standards (IFRS vs GAAP) distort comparisons.

• What is Liquidation Value?

  The value if all assets were sold off today. Each asset category gets a conversion rate (e.g. receivables 80%, inventory 60%, plant 40%). Slides example: £100m book value becomes only £63m liquidation value.