III.%20DCF%20Methods - III DCF Methods We take up five DCF...

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1 III. DCF Methods We take up five DCF methods to value the firm with perpetual cash flow, a constant debt ratio, and risk-free debt. A. NPV B. IRR C. APV D. FTE E. CCF
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2 Present value 1 2 t t+1 t+2 +------+------+--/ & /---+------+------+---/ & d 1 d 2 d t d t+1 d t+2 In classic form the stock price is the present value of all of its dividends 1 2 0 1 2 1 1 1 1 1 t t t t t d d d d P ... ... ( r) ( r) ( r) ( r) ¥ = = + + + + = ° + + + +
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3 Terminal value and interim vale In valuing assets we won t use infinite streams. Instead, we separate value into two parts Value = present value of interim cash flows + present value of time T terminal value (what it can be sold for at T)
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