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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 firms 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 firms weighted average cost of capital Subtract Market Value of Debt & Preferred Stock Divide by Shares Outstanding...
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 Fall '08
 sloan

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