How do value share price accretion using DCF and Mutliple approach for announced projects (ie, a mine or oilfield) that is 5 years out… how do you calculate how much a share price should theoretically go up? 1)Lets say a project is financed with 90% debt….do you just add the newly forecasted incremental cash flow to FCFF and then deduct the current debt PLUS the new expected debt to get Firm value to Equity, then divide by current shares plus any new shares? or is it just current debt? 2)How would this be done if you valuing based on enterprise value over earnings?…do you increase enterprise value due to new debt?
Let’s back up a level. Normally new project announcement shouldn’t affect stock price, assuming the company is in the business of undertaking and executing similar projects already. E.g. when msft says it’s going to create a new release of Office – new releases like this are what the company does, so the announcement of a new project doesn’t change company valuation. (Announcement that they will stop undertaking new projects – now that will affect stock price.) So if this company is already in the mine or oilfield business, stock price doesn’t change with a new project announcement. If you expect company valuation to change, then you need to be more careful: + you’re implying this is a different line of business for the firm – that they don’t currently have expertise in undertaking this kind of project. Is that true? + their cost to fund it will be different from their current wacc. You might look for funding costs at comparable firms in the industry – but you’d have to take a risk haircut the first time your company does this.