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For the cost of non-equity capital (debt and preferred stock) you can use commercially quoted rates that appear in . Click “search” tab and enter the company’s name, and you will see a list of bonds that are outstanding for your company. Then use the market-value-weighted average bond yields (YTM) as cost of debt in your formula. If there is no traded debt, then look for securities that are traded and have similar risk and maturity (e.g. bonds from competitors). Cost of capital is usually in a reasonable range such as 10-20%. If not, please look at your assumptions or calculations to see if anything is done incorrectly. Step 4: estimate firm’s value and stock price (Chapter 7 and Chapter 12)The firm's value consists of two parts: Value = Value of free cash flows during explicit forecast period (typically 5 to 10 years) + horizon (terminal) value of free cash flows after the forecast period. The value of firm's free cash flows during the forecast period is the discounted value or the present value of the free cash flows forecasted.
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