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fcfe - Valuation II Free Cash flow to Equity Click to edit...

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Click to edit Master subtitle style Prof Irvine FINA 4310 Valuation II – Free Cash flow to Equity

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Prof Irvine FINA 4310 22 Stock Valuation l The general valuation formula l PV is the intrinsic value of the stock l Security analysis is about determining the intrinsic value ( 29 = + = 0 , ) 1 ( t t i t i i k CF E PV where CFi , t are cash flows ki is the discount rate
Prof Irvine FINA 4310 33 Valuation Approaches and Specific Techniques Approaches to Equity Valuation Discounted Cash Flow Techniques Relative Valuation Techniques Present Value of Dividends (DDM) Present Value of Free Cash Flow Free Cash Flow Free Cash Flow to Equity Residual Income Price/Earnings Ratio (PE) Price/Cash flow ratio (P/CF) Price/Book Value Ratio (P/BV) Price/Sales Ratio (P/S)

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Prof Irvine FINA 4310 44 FCFE l Free Cash Flow to Equity £ In many instances an investor may not have control over all the attributes of a project or an investment £ Joint ventures, strategic partnerships, government partnerships £ In such ventures, the investor may not control some aspect of the investment, say debt policy, they are just an equity holder. £ Free Cash Flow to Equity (FCFE) is a way to calculate the returns in these situations £ Can also be used as a substitute for dividends in any Stock valuation problem
Prof Irvine FINA 4310 55 Present Value of Operating Cash Flows - DCF Derive the value of the total firm by discounting the total cash flows prior to the payment of interest to the debt-holders Then subtract the value of debt to arrive at an estimate of the value of the equity

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fcfe - Valuation II Free Cash flow to Equity Click to edit...

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