Introduction. Fundamental or intrinsic value Operational value (?going concern") not breakup valueComplex and time-consuming valuation method Show insights into value drivers and the market's implicit assumptionsUseful when multiples are not appropriate or feasible. How will we do this?. Calc
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3. How will we do this?
4. How will we do this?
5. Free Cash Flow
6. Free Cash Flow
7. Net Income vs. Free Cash Flow
8. Forecasting Free Cash Flow
9. Forecasting Free Cash Flow
10. Forecasting Free Cash Flow
11. Explicit Period vs. Terminal Period
12. Discount Rate Use a discount rate to apply time value of money
A dollar tomorrow isn’t worth as much as a dollar today
Discount rate you choose is directly related to risk level of the company
Reflects the required rate of return
Weighted Average Cost of Capital
Made up of Cost of Debt and Cost of Equity
13. Cost of Equity Capital Asset Pricing Model (CAPM)
Risk free rate + Risk Premium
Risk free rate
Use 10 year government bond yield to maturity for the country where the majority of the cash flow occur
If uncertain, use US Treasury rates
Beta*(Market return – Risk free rate)
Beta: how volatile is the company’s stock in comparison to the overall market?
14. Cost of Debt
15. Weight of Debt and Equity The weights in WACC should reflect the target capital structure
The weights in WACC should be calculated based on market value of equity and debt
Multiply the cost of debt and cost of equity to their respective weights
16. Enterprise Value
17. Enterprise Value