Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

DCF with Terminal P / E There are many ways to value an asset. Valuation is a science, but it is also an art. Each

DCF with Terminal P/E
There are many ways to value an asset. Valuation is a science, but it is also an art. Each method may not provide identical answers, and they can sometimes be far off.
A DCF model that incorporates using multiples and free cash flow is shown on slides 38-42 for Tesla. Using a similar approach to slides 38-40, value a stock with the following information.
Assume
FCFE per share in time 0= $1.00
FCFE per share in time 1= $1.10
FCFE per share in time 2= $1.20
FCFE per share in time 3= $1.30
FCFE per share in time 4= $1.40
FCFE per share in time 5= $1.50
FCFE per share in time 6= $1.60
FCFE per share in time 7= $1.70
Assume change in capital (net fixed assets and net operating working capital) in time 7 are $0.50 per share.
Assume the P/E in time 7 is 18
Assume the cost of equity (the discount rate or r) is 10%.
What is this stock worth?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Finance questions

Question

Define Management by exception

Answered: 1 week ago

Question

Explain the importance of staffing in business organisations

Answered: 1 week ago

Question

What are the types of forms of communication ?

Answered: 1 week ago

Question

What is the role of the Joint Commission in health care?

Answered: 1 week ago