Alternative Investment Valuation

Department of Management & HR

NUST Business School

National University of Sciences & Technology

BS A&F- 2K16
Course Details

Course Title: Alternative Investment Valuation

Course Code: FIN 325 Credit Hours: 3
Program: BS A&F 2K16 Sections: A/B

Course Faculty

Faculty Name
Muhammad Owais Qarni

Visiting Faculty
Cell # 0322-5298337
Email: djl.tsri@gmail.com

Course Description
The objective of this course is to develop a detailed understanding of the tools used by market professionals and
corporate managers to analyze the value of companies and stocks. The central theme of the course will be the
pricing of equity securities using discounted cash flow and relative valuation techniques. Students will apply what
they’ve learned to the valuation of a specific company, with the goal of becoming an expert on that firm.

Course focus and Modules: I expect each of you, as serious students of finance, to remain abreast of
current developments in financial markets and financial institutions in general. One way to accomplish
this is to read the Wall Street Journal (WSJ) daily. Students are expected to be prepared to discuss
relevant issues appearing in the WSJ in the weeks prior to each class session. For instance, the WSJ
Opinion pages and "Letters to the Editor" can serve as springboards for course discussions. Students
must be able to express and defend contrary viewpoints. Article excerpts from the WSJ may also be
materials for exam questions. (See below for subscribing to the WSJ and purchasing other required
materials.)

Course Learning Outcomes (CLO)

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After completing this course, students should be able to:
a) (i) Develop quantitative models for firm and equity valuation based on DCF and multiples.
b) (ii) Identify and interpret accounting and non-accounting information necessary for valuation.
c) (iii) Identify and interpret the key value drivers for a firm or industry.
d) (iv) Critically analyze firm and equity valuation models and assumptions developed by others.
e) (v) Present valuation analyses and assumptions in a professional manner.

Graduate Program Learning Goals and Objectives

General Learning Goals & Objectives of BS A&F program are:

1. Goal 1: Academic Rigor and Relevance
a. Graduates of the BBA program will be presented with a rigorous and integrated set of
learning opportunities in order to master the knowledge and skill necessary for effectively
participating in and managing modern organizations.
2. Goal 2: Research and Entrepreneurial Spirit
a. Gradates of the BBA program will be inculcated with a spirit of curiosity and
inquisitiveness enabling them to forefront progress in research and entrepreneurship.
3. Goal 3 Managerial and Business Application
a. Graduates of the BBA program will be encouraged to apply their learning to the
multilevel and intricate sphere of micro and macro business environments in order to
ensure pragmatism and expediency in corporate decision making.
4. Goal 4: Societal and Ethical Relevance
a. Graduates of the BBA program will be able to identify and evaluate the ethical and
societal implications of doing business as an organization.

PROGRAM LEARNING GOALS COURSE LEARNING COURSE ASSESSMENT

AND OBJECTIVES
Goal 1: Academic Rigor and
Relevance
Goal 2: Research and
Entrepreneurial Spirit
Goal 3 Managerial and Business
OBJECTIVES ITEM
Students will equipped with
relevant and latest knowledge in CP, Cases and Exam
the subject (CLO a-e)
Application of information
Cases and exams (minor
technology in preparing cases
component)
analyses and assignments
Major goal: Analytical thinking and CP, quizzes,

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 Application problem solving skills are essential assignments, cases and
for success in this course (CLO a- exam
e)
Students work in groups of 4-5
Goal 4: Societal and Ethical persons each to prepare case
Term projects
Relevance briefs and analyses. Most case
settings are global and multicultural

Course Evaluation (Grade Breakup)

Grading will be done as per NBS criteria. The breakup of the grade points is as follows:
Final Exam 40%
Midterm 25%
Final Project 15%
Quizzes 10%
Assignments 10%
(Including Class Activities/Case Study Discussions)

Course Content (Weekly)

Weekly breakdown is given below

Week Chapter no. Topic Page no.
1 Chapter 1 Introduction to Valuation 1
A Philosophical Basis for Valuation 1
Generalities about Valuation 2
The Role of Valuation 6
Conclusion 9
Questions and Short Problems 9
2 Chapter 2 Approaches to Valuation 11
Discounted Cash Flow Valuation 11
Relative Valuation 19
Contingent Claim Valuation 23
Conclusion 25
Questions and Short Problems 25

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3 Chapter 3 Understanding Financial Statements 27
The Basic Accounting Statements 27
Asset Measurement and Valuation 29
Measuring Financing Mix 36
4 Measuring Earnings and Profitability 42
Measuring Risk 47
Other Issues in Analyzing Financial Statements 53
Conclusion 55
Questions and Short Problems 55
5 Chapter 4 The Basics of Risk 58
What is Risk? 58
Equity Risk and Expected Return 59
Alternative Models for Equity Risk 71

6 A Comparative Analysis of Equity Risk Models 76

Models of Default Risk 77
Conclusion 81
Questions and Short Problems 82
7 Chapter 5 Option Pricing Theory and Models 87
Basics of Option Pricing 87
Determinants of Option Value 89
8 Option Pricing Models 90
Extensions of Option Pricing 107
Conclusion 109
Questions and Short Problems 109
Midterms Examinations

9 Chapter 6 Market Efficiency—Definition, Tests, and Evidence 111

Market Efficiency and Investment Valuation 111
What Is an Efficient Market? 112
Implications of Market Efficiency 112
Necessary Conditions for Market Efficiency 114
Propositions about Market Efficiency 114
Testing Market Efficiency 116
10 Cardinal Sins in Testing Market Efficiency 120
Some Lesser Sins That Can Be a Problem 121
Evidence on Market Efficiency 122

Time Series Properties of Price Changes 122

Market Reaction to Information Events 130
Market Anomalies 134
Evidence on Insiders and Investment Professionals 142
Conclusion 149
Questions and Short Problems 150

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 11 Chapter 7 Riskless Rates and Risk Premiums 154
The Risk-Free Rate 154

Equity Risk Premium 159

12 Default Spreads on Bonds 177
Conclusion 180
Questions and Short Problems 180
13 Chapter 8 Estimating Risk Parameters and Costs of Financing 182
The Cost of Equity and Capital 182

Cost of Equity 183

14 From Cost of Equity to Cost of Capital 210
Best Practices at Firms 221
Conclusion 222
Questions and Short Problems 223
15 Project Presentation
16 Project Presentation
Final Exam

Required Course Material

Textbook:
The required text for this course is following:
Investment Valuation, Tools and Techniques for Determining the Value of Any Asset, Third Edition by ASWATH
DAMODARAN

Additional Recommended readings

Students are encouraged to read financial publications such as the Wall Street Journal, Financial
Times, Business Recorder to stay abreast of developments related to this course

Dates to Remember

The dates/weeks provided in this section are a reasonable estimate of due dates for quizzes,
assignments and project related material submission. These may be subject to modification by
the instructor due to unforeseen circumstances/minor modifications in course. However, until
informed so, please consider these dates/weeks as final.

Date Item Due

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 Lecture 2 Announced Quiz No. 1
Lecture 2 Project Titles Finalized
Lecture 3 Assignment No. 1 (In-Class)
Lecture 5 Announced Quiz No. 2
Lecture 6 Assignment No. 2 Due
Lecture 10 Announced Quiz No. 3
Lecture 12 Announced Quiz No. 4
Lecture 14 Written Report Submission
Lecture 15 & 16 Group Presentations

Bear in mind that it is the responsibility of the student to continuously keep track of
these dates/weeks/lecture outline and any student not prepared for the class will be
marked negatively in CP as well as the relevant class activity

Do’s and Don’ts of Class

DO
Come to class on time and having completed
the reading material.
Take notes during the lectures.
DONT
Submit assignments, quizzes late. Such
assignments and quizzes will not be accepted.
Cause disturbance in class. If you have a
question, address it to the lecturer.

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 Ask questions that are relevant to the topic
being discussed and participate actively in
class discussions and activities.
Let the lecturer know in advance if you need to
miss a class.
Constantly check the deadlines that are due.
Constantly monitor the course outline and have
it with you at all times.
Research topics and news items for
constructive (and respectful) in-class debates.
Sample Front Page for Report/Assignments
Switch off/Put your phones on silent during
class.
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Walk in and out of class during the lecture as you
please. If you have an emergency, let the lecturer
know.
Come to class without your own copy of reading
material assigned for that week.
Ask the lecturer to reschedule deadlines.
Ask the lecturer to change attendance details.
Eat/Drink food in class.
Do Not forget to write some form of
identification on each document that is due for
submission of any kind. It is not anyone’s
responsibility to keep track of the author of such
documents but the author himself/herself.
 NUST Business School

FIN-325 – Alternative Investment Valuation

Topic of Report/Assignment

Submitted to;
Faculty Name
Submitted by;
xxx
BS A&F 2K16 A/B

Date: xx Month, 2018.