【正文】 subtract debt to determine equity valuation Test model values against actual stock prices for thousands of firms for 1040 years across many countries。 on Corporate Tax Rate Correlation between Inflation and Tax Rates: % CFROI Actual R2 = THE BOSTON CONSULTING GROUP P:\MasterDk\ BCG?s Value Management Framework An Overview for MBA Rt rt (Ppt) Slide 20 March 2, 1998 2:01 PM 20 Copyright 1996 BCG/HOLT Planning Associates All Rights Reserved TO SMOOTH ECONOMIC CYCLES, BUT INCORPORATE STRUCTURAL SHIFTS, BCG?S VALUATION MODEL ASSUMES CURRENT CFROI LEVELS FADE TOWARD THE 5YEAR PAST MEDIAN OF THE DISCOUNT RATE SAMPLE AT A 10% RATE 01234567891011121950 1955 1960 1965 1970 1975 1980 1985 1990 1995Year%Annual CFROI?s 5Year Past Median CFROI?s THE BOSTON CONSULTING GROUP P:\MasterDk\ BCG?s Value Management Framework An Overview for MBA Rt rt (Ppt) Slide 21 March 2, 1998 2:01 PM 21 Copyright 1996 BCG/HOLT Planning Associates All Rights Reserved BCG?S VALUATION MODEL ANTICIPATES THAT THE GROSS ASSET GROWTH RATE OF ALL COMPANIES IN THE USA FADE TOWARD THE LONG TERM ECONOMY AVERAGE 32101234567891950 1955 1960 1965 1970 1975 1980 1985 1990 1995Year%Annual GDP Growth Rates % Compounded Annual Growth Rate in GDP from 19501996 Unlike CFROI?s, where clear trends are evident, there does not appear to be a clear trend in growth rates for the economy. Consequently, a long term average smooths out the annual fluctuations with no loss in investor anticipated trend. THE BOSTON CONSULTING GROUP P:\MasterDk\ BCG?s Value Management Framework An Overview for MBA Rt rt (Ppt) Slide 22 March 2, 1998 2:01 PM 22 Copyright 1996 BCG/HOLT Planning Associates All Rights Reserved Price = Discounted Present Value of Expected Future Net Cash Flows THE INVESTORS? DISCOUNT RATE IS THAT RATE WHICH EQUATES THE PRESENT VALUE OF CASH FLOWS FROM BCG?S VALUATION MODEL TO THE MARKET VALUE OF DEBT AND EQUITY Market Value of Debt and Equity of SP 400 Sample $3,474 Billion $1,903 Billion of Assets Returning % and Growing at % per year Fading 10% toward % CFROI Solve for the Rate at Which Present Value of Cash Flows Equals Price September = % (Weighted Averaged Real AfterCorporateTax Cost of Capital) Answer tells us what the Market is presently requiring as a Rate of Return THE BOSTON CONSULTING GROUP P:\MasterDk\ BCG?s Value Management Framework An Overview for MBA Rt rt (Ppt) Slide 23 March 2, 1998 2:01 PM 23 Copyright 1996 BCG/HOLT Planning Associates All Rights Reserved CALCULATION OF FUTURE CASH FLOWS AND PRESENT VALUES 1996 DISCOUNT RATE SAMPLE THE BOSTON CONSULTING GROUP P:\MasterDk\ BCG?s Value Management Framework An Overview for MBA Rt rt (Ppt) Slide 24 March 2, 1998 2:01 PM 24 Copyright 1996 BCG/HOLT Planning Associates All Rights Reserved THE BOSTON CONSULTING GROUP P:\MasterDk\ BCG?s Value Management Framework An Overview for MBA Rt rt (Ppt) Slide 25 March 2, 1998 2:01 PM 25 Copyright 1996 BCG/HOLT Planning Associates All Rights Reserved PAST RESOURCES COMMITTED 1996 DISCOUNT RATE SAMPLE THE BOSTON CONSULTING GROUP P:\MasterDk\ BCG?s Value Management Framework An Overview for MBA Rt rt (Ppt) Slide 26 March 2, 1998 2:01 PM 26 Copyright 1996 BCG/HOLT Planning Associates All Rights Reserved CALCULATION OF ASSET ADDITIONS 1996 DISCOUNT RATE SAMPLE THE BOSTON CONSULTING GROUP P:\MasterDk\ BCG?s Value Management Framework An Overview for MBA Rt rt (Ppt) Slide 27 March 2, 1998 2:01 PM 27 Copyright 1996 BCG/HOLT Planning Associates All Rights Reserved THE BOSTON CONSULTING GROUP P:\MasterDk\ BCG?s Value Management Framework An Overview for MBA Rt rt (Ppt) Slide 28 March 2, 1998 2:01 PM 28 Copyright 1996 BCG/HOLT Planning Associates All Rights Reserved THE BOSTON CONSULTING GROUP P:\MasterDk\ BCG?s Value Management Framework An Overview for MBA Rt rt (Ppt) Slide 29 March 2, 1998 2:01 PM 29 Copyright 1996 BCG/HOLT Planning Associates All Rights Reserved BCG DECOMPOSES THE WEIGHTED AVERAGE REAL COSTS OF CAPITAL INTO THEIR DEBT AND EQUITY COMPONENTS USING MARKET WEIGHTS 20246810121950 1955 1960 1965 1970 1975 1980 1985 1990 1995 Ye a r% Real Debt Rate After Corporate Tax Real Equity Rate Real Weighted Average THE BOSTON CONSULTING GROUP P:\MasterDk\ BCG?s Value Management Framework An Overview for MBA Rt rt (Ppt) Slide 30 March 2, 1998 2:01 PM 30 Copyright 1996 BCG/HOLT Planning Associates All Rights Reserved MARKET % DEBT/TOTAL CAPITAL HAS DECLINED SIGNIFICANTLY SINCE 1990 0510152025301950 1955 1960 1965 1970 1975 1980 1985 1990 1995 Ye a r%Variations in Market Leverage and Investor Tax Premiums Help to Explain Market Derived Real Equity Discount Rates See Next Slide ... THE BOSTON CONSULTING GROUP P:\MasterDk\ BCG?s Value Management Framework An Overview for MBA Rt rt (Ppt) Slide 31 March 2, 1998 2:01 PM 31 Copyright 1996 BCG/HOLT Planning Associates All Rights Reserved 202468101214161950 1955 1960 1965 1970 1975 1980 1985 1990 1995%Real Equity Discount Rates Depose into the Fundamentals of Tax Premiums, Leverage Risk Premiums, CFROI?s SubPar Returns USA 19501997 Dividend Tax Premiums Capital Gains Tax Premiums Leverage Risk Premiums Market Derived Real Equity Discount Rate Fundamental Equity Discount Rate =+DivTaxPrem+CapGainTaxPrem +*Debt/Total Capital +* CFROI 1972/78 SubPar Returns 1972/78 SubPar Returns。T h e F