Weekly Challenge 6
Attached is the valuation of Daimler Chrysler. The valuation follows the conventional format. I used the current market price to estimate the weights for the cost of capital calculation and then used the cost of capital to come up with an estimate value of equity (which is different from the market value used in step 1).
a. Explain what the inconsistency is and how you would justify its existence.
b. How would you eliminate the inconsistency from the valuation? In other words, how would you ensure that you have the same equity value in the cost of capital calculation and as the ending value for equity?