Discounted Cash Flow

Discounted Cash Flow - Discounted Cash Flow (DCF) Analysis...

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Discounted Cash Flow (DCF) Analysis FIN 461 Professor Thomas Boulton Rosenbaum and Pearl, Chapter 3
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DCF analysis Pros Cash flow-based Market independent Self-sufficient Flexibility Cons Dependence on financial projections Sensitivity to assumptions Terminal value Assumes constant capital structure Premise: The value of a company equals the present value of its projected free cash flow.
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DCF analysis Steps: 1. Study the target and determine key performance drivers 2. Project free cash flow 3. Calculate weighted average cost of capital (WACC) 4. Determine terminal value 5. Calculate present value and determine valuation
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DCF analysis Steps: 1. Study the target and determine key performance drivers Learn as much as possible about target and its sector Key performance drivers: sales growth, profitability, FCF generation Information sources include SEC filings (e.g., 10-K, 10-Q, 8-K), equity research reports, earnings call transcripts, and investor presentations
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This note was uploaded on 12/19/2011 for the course FIN 461 taught by Professor Boulton during the Fall '11 term at Miami University.

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Discounted Cash Flow - Discounted Cash Flow (DCF) Analysis...

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