Hi, I’m confused as to why we initially switch the projections into real terms (step # 1) and then go right back and switch it to nominal terms (step # 2) Any thoughts would be appreciated.
Still confused about it, anyone?
explain your question more. i think its because you cant divide the depreciation by the level of inflation but i am not exactly sure.
Well, in step 1, we put all the components in real terms (from nominal) then in step 2, we convert it back to nominal. I don’t understand why we do that
I had similar question before. I think the switch is that in order forcast Nominal FC Inv, we need to find real FC inv first. I learnd it from schweser, not sure how the book does it. sry man, i may have misread your question.
Are you referring to the steps for valuation of emerging markets? Here is the concept as I understand it which might not be sufficient for exam. I keep seeing it and its a fairly long process. So my hope is that it is simplified for exam. You are actually valuing the company two ways, one is with real cash flows and one is with nominal cash flows. Its just a FCFF method. The steps are how to arrive at the real and nominal CFs you are plugging into your two DCF’s. So steps 1 forecast real ebitd anf FCInv, 2 Forecast nominal depreciation, noplat, fcinv, wcinv, 3 Forecast real noplat Are then used in step 4 and 5 for two different valuation real CF discounted at real wacc nominal CF discounted at nominal So in step 2, forcast nominal you aren’t undoing your work from 1. Your two values should be the similar or its a red flag to the analyst that your assumptions may be wrong. The examples while not extremely difficult, are extremely time consuming. So I am just thinking there will be major simplification for exam where its more of an interpretation that calculation. If its a detailed calculation. I will definitely wait for the end of the exam to attempt.
i hope so too stingreye thanks for the clarification