Corporate valuation

Corporate valuation - Corporate valuation Please read...

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Corporate valuation Please read chapter 15 in the textbook in addition to these notes. Those of you who took ECBU 500D with probably remember me explaining that the price of any thing is the present value of future benefits. For example, the price of a chair would be the present value of future benefits. The benefits being the comfort and use you get of the chair and the present value is what you pay for the chair. The more comfortable the chair is the more expensive it is. This concept applies to any thing we purchase. It is important to remember that the benefits could be real or perceived. Either way they benefits. In the case of financial instruments, the future benefits are cash flows. The price of a stock is the present value of the expected dividends, the price of a bond is the present value of the coupon payments and the face value, and the price of a company is the present value of expected future cash flows from the business. Calculating the value of a firm To calculate the value of a firm, we need two things, forecast the future free cash flows (FCF) and the required return. The required return : The required return on a company is its cost of capital (wacc). We will deal with this issue in a couple of weeks. For now, we will use the required return as a given number. The expected future free cash flows (FCF)
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Corporate valuation - Corporate valuation Please read...

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