| Course | GB792 Advanced Topics in Finance |
|---|---|
| Unit | Unit 8 |
| Paper type | Valuation model critique |
| Length | About 1,110 words, 7 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | MBA |
| Updated | October 2026 |
Free sample paper for GB792 Unit 8
A Range That Fit the Price: A Unit 8 Critique of a Buyout Valuation Model
[Student Name]
Purdue University Global
GB792: Advanced Topics in Finance
Unit 8 Valuation Model Critique
[Instructor Name]
[Date]
Kellbrook Cold Storage, its buyout and every figure are composite and illustrative; the valuation methods and studies cited are real.
The Disclosed Model
The proxy statement for the buyout summarized the financial adviser's discounted cash flow analysis. It used five years of management projections of unlevered free cash flow: 30.0, 34.0, 38.5, 43.0 and 48.0 million dollars. Those flows were discounted at 8.9 percent, the adviser's figure for Kellbrook's blended cost of debt and equity, and the value beyond year five came from assuming free cash flow would grow at 2.5 percent a year forever. That produced an enterprise value of about 650 million dollars, of which the present value of the terminal value supplied about 77 percent. Subtracting net debt of 150 million dollars and dividing by 14.0 million diluted shares gave a midpoint of about 35.70 dollars a share. The adviser then varied the cost of capital from 8.4 to 9.4 percent and the growth rate from 2.25 to 2.75 percent, producing the range of about 31 to 42 dollars. The offer of 34 dollars sat inside it, and the opinion concluded that the price was fair to shareholders from a financial point of view.
Where the Inputs Came From
The cost of capital was built in the usual way. Kellbrook's cost of equity began with the twenty-year Treasury yield, 4.3 percent, then added a beta of 1.05 times an equity risk premium of 6.0 percent, plus a size premium of 1.8 percentage points, for a cost of equity of 12.4 percent. The after-tax cost of debt was 4.6 percent, and the capital mix assumed was 55 percent equity to 45 percent debt; combined, these produce the 8.9 percent rate.
Checking each input against its disclosed source shows four with none. The risk-free rate was identified as the yield on the twenty-year Treasury bond on the valuation date, which can be verified. The cost of debt was tied to Kellbrook's existing borrowing, also verifiable. But the equity risk premium was stated without a source, though estimates used in practice commonly range from about 5 to 7 percent (Damodaran, 2012). The beta was described as the median of a peer group whose members were not named. The size premium was stated without a source or a method. And the projections, which management prepared, assumed revenue would grow at about twice its rate over the previous five years, without explanation in the proxy.
Rebuilding the Valuation One Input at a Time
Each undocumented input can be varied within a range that published practice would support, holding the others at their disclosed values.
The size premium. Size premiums are widely used but contested; some practitioners omit them for firms of Kellbrook's size, and the empirical support for a separate size effect has weakened since the 1980s. Removing it lowers the cost of equity to 10.6 percent and the cost of capital to about 7.9 percent, which raises the value to about 44.70 dollars a share.
The equity risk premium. Using 5.0 percent instead of 6.0, a figure within the published range, lowers the cost of capital to about 8.3 percent and raises the value to about 40.60 dollars.
The beta. A peer group weighted toward warehouse operators with more customer concentration could plausibly produce a beta of 1.25. That raises the cost of capital to about 9.55 percent and lowers the value to about 31.30 dollars.
The projections. If free cash flow grew at the company's historical rate, about 6 percent a year, rather than at the projected rate, the five years of cash flow would run 30.0, 31.8, 33.7, 35.7 and 37.8 million dollars. At the disclosed cost of capital and growth rate, the value would fall to about 26.80 dollars a share, well below the offer.
Each of these choices can be defended on its own. Varied one at a time, they move the value from about 26.80 to about 44.70 dollars, a span of eighteen dollars around an offer of 34.
The Sensitivity Grid
The grid crosses the cost of capital against the terminal growth rate over wider ranges than the opinion used, at the disclosed projections. At a cost of capital of 7.9 percent, values run from about 37.30 dollars at 1.5 percent growth to 44.70 at 2.5 percent and 55.30 at 3.5 percent. At 8.9 percent, they run from about 30.60 to 35.70 to 42.80. At 9.9 percent, from about 25.40 to 29.20 to 34.10. The full grid therefore spans about 25 to 55 dollars a share.
The terminal value explains why the range is so sensitive. Because it supplies about 77 percent of enterprise value, small changes in the discount rate or growth rate move most of the valuation. Kaplan and Ruback (1995) compared cash flow forecasts in highly levered buyouts with the prices later paid and found the resulting values were, on average, close to the prices eventually paid, but with substantial dispersion, which is what a model dominated by its terminal value would produce.
A range that brackets the offer is only as informative as the choices behind its endpoints, and four of those choices were not disclosed.
What a Shareholder Could Verify
A shareholder reading the proxy could verify the risk-free rate, the cost of debt, the net debt and the share count. They could not verify the equity risk premium, the peer group, the size premium or the basis for the projections. Those four inputs determined whether the offer looked fair. A shareholder could not reproduce the range without guessing at them.
Cain and Denis (2013) studied fairness opinions and found evidence that the valuations they contain carry information, but also that advisers' incentives, including fees contingent on the deal's completion, can affect the analysis. The critique here does not claim the adviser chose inputs to fit the price. It claims that the disclosure did not allow a reader to tell.
What Better Disclosure Would Show
Three disclosures would let a shareholder judge the range. The proxy could name the peer group and the betas of each member. It could state the source of the equity risk premium and the size premium, or omit the size premium and say why. And it could show the value under the company's historical growth rate alongside management's projections, so that the effect of the projections' optimism is visible. None of these disclosures would require new analysis. Each would make the range something a reader could test.
References
Cain, M. D., & Denis, D. J. (2013). Information production by investment banks: Evidence from fairness opinions. The Journal of Law and Economics, 56(1), 245-280. https://doi.org/10.1086/666877
Damodaran, A. (2012). Investment valuation: Tools and techniques for determining the value of any asset (3rd ed.). Wiley.
Kaplan, S. N., & Ruback, R. S. (1995). The valuation of cash flow forecasts: An empirical analysis. The Journal of Finance, 50(4), 1059-1093. https://doi.org/10.1111/j.1540-6261.1995.tb04050.x
The Purdue Global GB792 Unit 8 instructions
Unit 8 of GB792 asks you to critique a published valuation model by rebuilding it. Summarize the disclosed model: the cash flow projections, the discount rate, the terminal value method and the share of value the terminal value supplies. List every input with its disclosed source and mark those that have none. Then vary each undocumented input, one at a time, within a range that published practice supports, and report the effect on value per share. Build a sensitivity grid over a wider range than the original. Explain why the model is as sensitive as it is. Discuss what a reader of the disclosure could and could not verify, drawing on research about such valuations and the incentives of those who prepare them. Close with the disclosures that would let a reader test the range. Six pages and a grid suit most sections.
How this GB792 Unit 8 example is built
The critique summarizes the projections of 30.0 to 48.0 million dollars, the 8.9 percent rate, 2.5 percent growth, 650 million dollar enterprise value, 77 percent terminal share, 150 million of net debt and 14.0 million shares. The cost of capital is broken into its parts, and the source check marks four inputs without support, citing Damodaran for the usual premium range. One-at-a-time changes move value from 26.80 dollars at historical growth to 44.70 without the size premium. Crossing three discount rates, 7.9 to 9.9 percent, with growth from 1.5 percent up to 3.5, the grid spans about 25 to 55 dollars, and Kaplan and Ruback put the dispersion in context. The highlighted sentence states the critique's point, Cain and Denis frame adviser incentives, and three specific disclosures close it.
Reading the GB792 Unit 8 grading rubric
The GB792 valuation critique is graded on whether the rebuilt model is right and the argument fair. Instructors check that the rebuilt values follow from the disclosed inputs, so arithmetic must be reproducible. The source check, marking which inputs lack support, earns heavy weight because it locates the critique's claim. Variations should stay within ranges published practice supports, and extreme assumptions lose credit. A wider sensitivity grid, with an explanation of why terminal value drives it, shows understanding of the model. Distinguishing a claim about disclosure from a claim that the price was unfair is often a separate rubric point. Research on valuation accuracy and adviser incentives should be used to frame the critique. Specific disclosure recommendations earn the final marks.
Common GB792 Unit 8 mistakes, and how to avoid them
Many GB792 valuation critiques argue that the discount rate was too high or too low without rebuilding the model to show what difference it makes. Others vary inputs far beyond any defensible range to make the point. The share of value coming from the terminal value is often left unstated, though it explains the sensitivity. Students frequently imply the adviser chose inputs to fit the price, which the evidence cannot show. Recommendations tend to be general calls for transparency. Rebuild the model from its inputs, mark the unsupported ones, vary each within published ranges, widen the grid, explain the terminal value's weight, keep the claim about disclosure and name exact disclosures. Bring us the proxy or model you are reviewing, and we can rebuild it with you.
Get a GB792 Unit 8 example written to your instructions
Tell us which valuation is under review, a fairness opinion, an analyst model or one built for your case, and attach the Unit 8 prompt and rubric. What you get back reproduces the model exactly, inventories every input by its documented basis and isolates each undocumented one in a sensitivity test. 24-48h is typical, and the first custom sample is free. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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GB792 Unit 8 questions, answered
Why use a fairness opinion as the valuation under review?
Because its disclosure is public in form and its incentives are easy to state: the opinion supports a price already agreed. That makes the gap between documented and assumed inputs unusually consequential. The composite used here mirrors that structure without describing any real transaction. If your section assigns an equity analyst's model instead, the inventory and one-at-a-time method apply unchanged.
Where do the published ranges for inputs come from?
From sources a reader can check: survey evidence on equity risk premiums used in practice, academic estimates of historical premiums, and the dispersion of betas across reasonable peer groups. The critique cites each source beside its range. Ranges asserted without sources would repeat the very weakness the critique identifies in the opinion, so each one is referenced.
Does the critique conclude the buyout price was unfair?
No. It concludes that the disclosed model cannot distinguish 34 dollars from prices well above or below it, which is a claim about evidence rather than fairness. Whether the price was adequate depends on the sale process and the alternatives available, which lie outside a model critique. Your section may ask for that further judgment, argued separately.
Where can I find a free GB792 Unit 8 sample paper?
A complete GB792 Unit 8 valuation model critique is on this page, rebuilding a buyout fairness opinion's discounted cash flow model and showing how undocumented inputs widen its range.
Why does the terminal value dominate a discounted cash flow model?
It captures all cash flows after the projection period. Here it supplies about 77 percent of enterprise value, so small changes in the discount rate or long-run growth move most of the valuation.