In this session, we wrapped up our discussion of intrinsic value by looking at financial service and commodity companies. For decades, we have valued banks using the dividend discount model, simply because getting cash flows is so difficult, but that approach is built on trusting management at banks to behave sensibly (paying out what they can afford to in dividends) and regulators to do the same. For me, that trust was breached in 2008, and I present a way of estimating FCFE for a bank, using investment in regulatory capital as my stand in for reinvestment. Next session, we will wrap up the valuation section and start on pricing. If you are interested in reading more about valuing financial service companies, try this link: papers.ssrn.com/sol3/papers.cfm?abstract_id=1798578 The Deutsche Bank post is here: aswathdamodaran.blogspot.com/2016/10/deutsche-bank-greek-tragedy-at-german.html We also looked at valuing commodity and cyclical companies, and why capitalizing R&D can change the value of a pharmaceutical company. The last part of the class was our first foray into pricing, why price can be different from value and why pricing is so much more common than intrinsic value. Start of the class test: www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/dcfvaltests3.pdf Slides: www.stern.nyu.edu/~adamodar/podcasts/valUGspr21/session18slides.pdf Post class test: www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session18Ctest.pdf Post class test solution: www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session18Csoln.pdf

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