model - V. Beyond Inputs: Choosing and Using the Right...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Aswath Damodaran 138 V. Beyond Inputs: Choosing and Using the Right Model Discounted Cashflow Valuation
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Aswath Damodaran 139 Summarizing the Inputs n In summary, at this stage in the process, we should have an estimate of the the current cash flows on the investment, either to equity investors (dividends or free cash flows to equity) or to the firm (cash flow to the firm) the current cost of equity and/or capital on the investment the expected growth rate in earnings, based upon historical growth, analysts forecasts and/or fundamentals n The next step in the process is deciding which cash flow to discount, which should indicate which discount rate needs to be estimated and what pattern we will assume growth to follow
Background image of page 2
Aswath Damodaran 140 Which cash flow should I discount? n Use Equity Valuation (a) for firms which have stable leverage , whether high or not, and (b) if equity (stock) is being valued n Use Firm Valuation (a) for firms which have leverage which is too high or too low , and expect to change the leverage over time, because debt payments and issues do not have to be factored in the cash flows and the discount rate (cost of capital)
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 7

model - V. Beyond Inputs: Choosing and Using the Right...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online