I just dont get the explantion to question 11 . It starts by saying FCFE = net inc - (1-DR) (FC Inv - Depr) - (1-DR)(WCInv) where DR is the DEBT RATIO . Then rewrites it FCFE = NI - (1-DR) ( net investment in op assets ) I get this no issues then on the very next page 258 in a table it seems to calculate FCFE by taking Net Inc- Net investment in op assets + debt financing. with No consideration of the debt ratio ??? WHat happened to the debt ratio ??? thanks for the help !
FCFE=NI - (1-DR)(FCInv-Depr+WCInv) = NI - (FC-Depr+WcInv) + DR*(FCInv-Depr+WCInv) = NI - net Inv in Operating Assets + Debt Financing. For a company that has been in the industry for a long time - and is in steady state - all the Debt Financing it would need would be a steady state debt rate x (Net Investment in Operating Assets) Net Investment in Operating Assets = Maintenance needed for Fixed Capital after Depreciation expenses are removed and Maintenance doses of Working Capital.
Hey yes this is one of toughest concepts in equity and even i forgot the formula.
FCFE= Net income + Net borrowing - Incremenetal WCapital exp- Incremental Fixec capital expenditure
Wherei
Net borrowing = Debt Ratio ( Incremental working capital exp + Incremental Fixed capital expenditure)
V imp: Depreciated is not added back in FCCE/FCFF calculations in sales forecast method
Being modest eh 
is gordon model not used in multistage residual income valuation model ?
Pg no 412 Q no 25 in equity curriculm book why they did not calculate terminal value using gordon model and then discount it back ?
Usually, you’d use the Gordon Model to estimate the share price in the terminal year. However, in this problem, they are using the multistage RIM (see equations 6 and 7 in the text). The terminal value is determined by finding the present value of the premium (terminal year share price minus the terminal year book value). This problem states that in the terminal year, the the share price equals book value, essentially making the terminal value zero. Note that you still have to account for residual income term in the terminal year (i.e. discount it).
Hope this helps. As a side note, you may get better responses if you start new topics/questions in their own threads.
Ok aether this means we dont use gordon model in multistage residual income model
Cool, you are completely missing Aether’s post… Use logic. What are you doing by using the gordon model as you say it. You are simply discounting a stream of growing perpetuity. As stated, that scenario does not apply in that specific example.
Surgeon general’s warning: rote memorization is harmful to L2 candidates exam results
CMLSML i am sorry i am lil confused in this concept. Is it that i mutli stage models in residual income we only consider difference between market value and book value for calculating terminal value ?
Vicky, your mind’s beginning to go in the right direction. Basically, you need to forget (not completely forget) about the GGM when it comes to RIM - similar concepts, but different formulas/fundamentals. Think of RIM building upon GGM’s underpinnings. Conceptually, the CFAI also expects us to know the differences between multistage RIM and multistage DDM (where GGM is explicitly used).
GGM - you use dividends into perpetuity to obtain a TV.
RIM - you use RI assumptions to obtain a TV.
In multistage RIM, the TV is a much smaller portion of the overall valuation. Compare this to the multistage DDM, where TV can be as much as 80-90% of the final valuation.
I also think you should refer to the CFAI material directly because I’m certain almost all of the prep providers are going to either skip or breeze through such details.
Aether thanks dude so we wont uae gordown model in mutlistage Residual income model. We will focus only on market price- book value for terminal value and discount it back. 
I am studying from CFA book but this question did stump me