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Study Session 11: Equity Investments: Free Cash Flow and Other Valuation Models

EBIT, TARGET DEBT %, TAX RATES- to compute Value of Firm, Equity Value

Please suggest/advise/discuss on the following:

In an exam question, the details provided are:

Company’s EBIT FOR 5 YEARS, 

Tax Rate for 5 years

Cost of Debt (5%)

Weighted Average Capital Cost (12%)

Target Debt % (10%)

Debt’s Market Value 35 Million

Yearly Capex amount for 5 years

Yearly Depreciation amount for 5 years

annual change in working capital data for 5 years

2 Scinarios were given.

In scenario 1, there is no assumption.


How does time value of money / discounted cash flow are treated in accounting?

Do we discount depreciation?

from firm value to equity value

i wanna review the text where it describes what are the general adjustments to arrive to equity value from firm value…
can anyone please share the exact location in curriculum?

Nominal vs real rates for FCFE

A bit confused when to use nominal interest rates and nominal growth and when to use real interest and growth rates in the FCFE

Multistage Residual Income Model - Persistence Factor (Need Clarification)

Hey guys, for the LIFE of me I just can’t seem to understand the formula for the RI Multistage Model with respect to the persistence factor.

V0=B0 +T−1∑t=1(Et−rBt−1)(1+r)+  Et−rBT−1/1+r−ω)(1+r)T−1

When the persistence factor is 1, it means that RI will continue at the same level indefinitely. Substituting 1 Into the equation,

Calculating WC Inv in FCFF

Does anyone have a definitive equation for calculating Working Capital Investment in the free cash flow model that has gotten them to the correct answer every time.  What is included and what is excluded?

Calculating beginning book value per share

(Schweser Residual Income Valuation EOC q3)

Does anyone know how we get beginning book value per share for 2018-2021 from the below?

For reference, the answer is: 2018: 10.62; 2019: 11.89; 2020: 13.32; 2021: 14.91.

Calculating FCFE

Hi, when calculating FCFE, capital expenditures (fixed capital investment) has to be deducted and net borrowing has to be added. However, what about given (not received) loans?
I’m working in construction company, which has many construction companies (SPVs) in their group. The company which I’m analysing regularly provides loans for other group companies. This amount is shown in Cash flows from investing activites statement.