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Unformatted text preview: • Most appropriate for mature companies with stable history of growth and stable future expectations. • Does not work if 1 . Company pays no dividends 2 . If g is larger than r s 6 Zero Growth Stock • Example would be a preferred stock with the dividend is set and does not change. p o = D r s Where D is the current dividend 7 Valuing the Entire Corporation • Used when future dividends are not easily predictable. • Where no history of dividends exist • Calculates firm’s expected free cash flows and then finds their present value. FCF = [ EBIT (1t) + Depreciation & Amortization] [Capital Expenditures + Change in Net Operating Working Capital] 8 Steps to Calculate • Calculate Expected End of Year Free Cash Flow (FCF) • Calculate Present Value (PV) of FCF FCF WACC g Where WACC is the firm’s weighted average cost of capital • Subtract Market Value of Debt & Preferred Stock • Divide by Shares Outstanding...
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This note was uploaded on 04/12/2008 for the course BUS 320 taught by Professor Sloan during the Fall '08 term at N.C. State.
 Fall '08
 sloan

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