Module 13 - Cash-Flow-Based Valuation Discounted Cash...

Cash-Flow-Based
Valuation

Discounted Cash Flow (DCF)
•
FCFF = NOPAT – Increase in NOA
•
Or FCFF= OCF + Interest exp net - CAPEX
•
Firm Value = Present value of expected free
cash flows to the firm (FCFF)

4
)
w
r (1
4
FCF
3
)
w
r (1
3
FCF
2
)
w
r (1
2
FCF
)
w
r (1
1
FCF
F
0
V
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

Discounted Cash Flow (DCF)
•
DCF valuation of common stock involves 3 steps:
1. Forecast and discount free cash flows to the firm
(FCFF) for the
horizon period
.
2. Forecast and discount FCFF for the post-horizon
period, called the
terminal period
.
3. Sum the present values of the horizon and terminal
periods to yield firm value.
Resulting value above is for the entire firm.
4. Subtract the value of the firm’s debt (NNO) from the
value of the firm.
5. Divide this amount by the number of shares
outstanding to yield the estimated per share stock
price

Discounted Cash Flow Model

Discounted Cash Flow Model
—Details

Discounted Cash Flow Model

Discounted Cash Flow Model

Discounted Cash Flow Model