Conclusion

In this chapter, we explored concepts that are fundamental to an analysis of shareholder value. First, we discussed how to create a cash flow model by accounting for the benefits and costs of a Strategic Alternative. We then learned about primary sources of risk, how they impact our shareholder value analysis, and ways to mitigate them. Finally, we explored the concept of cost of capital. We learned that the total cost of capital, also known as the weighted average cost of capital, consists of the cost of equity and the cost of debt and that it is used to determine the discount rate—the rate used to convert future cash flows to their present values. In Chapter 11, we will apply these fundamental analytical components to explore alternative methods for estimating the future value created from a Strategic Alternative.