I just try to be reasonable and use common sense.
3, for example, imagine that instead of investing in the investment providing future cash flows, you could invest your money in treasuries earning a guaranteed return of 2 percent per year.
Just try that on your own calculations will show that when you raise the FCF growth rate to 26 for both the 5-year periods, the stocks intrinsic value will rise to Rs 1,233or almost near the current price.5, the discount rate must be represent as a decimal rather than by a percentage.Unlevered Free Cash Flow Terminal Value comments powered by Disqus.To use your DCF result, you will need to understand what your figures represent.But it will be merely a case of garbage in-garbage out.Now lets look at what happens if we were able to expand the revenue we are getting from Customer 2 from 5k to 7k: Something very interesting has happened here: the expansion revenue of 2k from remaining customers was greater than the 1k that.So they use relative valuation multiples like price to earnings, price to book value, orbitz hotel coupon codes 2015 or EV/ebitda (which are also based on predictions!).Re.5, rd 6, tax rate 30, to find wacc, well enter the values into the equation and solve: The wacc for acme Corp., then,.84, and well go ahead and round up.I would like to leave you with the link to a very good resource The Dangers of DCF written by James Montier in 2008.Valuation is an imprecise art (yes, however smart you may think you are!).Now what to do?However, assuming FCF growth rates of 10 (for 1-5 years) and 8 (for 6-10 years we arrive at an intrinsic value of Rs 398.For example, businesses analyzing a project might add a risk premium on to the discount rate used to discount the cash flows from a risky project.I am really interested in hearing readers feedback on the ideas expressed in this article.Anyways, despite his secretiveness, Buffett has been vocal about the importance of DCF several times in the past.
But if you were to believe a majority of security analysts out there, they will tell you to simply avoid DCF.