| Summary: | 碩士 === 淡江大學 === 財務金融學系 === 89 === As the development of Internet companies, there is a question that the new economy has changed the rules of stock valuation. Due to the Internet firms with negative earning, a limited history of performance and few or no comparable firms, the valuation task is becoming more difficult.
According to the adjusted free cash flow model which is developing by Damodaran(1999), the first way to test the reasonableness of new economy stock price is to model the company’s ability to generate cash in the future. We value a firm by estimating the free cash flow and terminal value during the period and discounting all of the cash flows. Then, we need to net out the outstanding debt and option value of the firm to get the equity value. By relative valuation, we standardize prices of different securities by using multiples such as price to sales ratio, and compare the standardize prices across the similar firms. Finally, we apply the real-options theory to the problem of valuing an Internet company. We describe the model created by Schwartz and Moon (2000), estimate the model parameter and solve the model by simulation.
We begin the analysis at the third season of 2000 and compare the result with the current market price. The both results generated by traditional pricing model and real-options model are lower than the current market prices. Even if we use better conditions to be the substitutions, the results could not arrive the highest prices in the market. We also find that the value of Internet stocks may be rational if the expected growth rate of the company can reach a dramatically high level and contain sufficient volatility over time. We suggest that the overpricing of Internet stocks can be explained by the investor’s euphoria for the “New Economy”.
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