Question
I need step by step breakdown on how to calculate the Discounted Cash flow Model (DCM) for FedEx so that I understand and can evaluate
I need step by step breakdown on how to calculate the
Discounted Cash flow Model (DCM) for FedEx so that I understand and can evaluate the valuation of their stock price.
| Free Cash Flows to the Firm (FCFF): | |
| FCFF = NOPAT Increase in NOA | |
| DCF model - steps | |
| 1. Forecast and discount free cash flows to the firm (FCFF) for the horizon period. | |
| Discount Factor ([1/(1+rw)t] | |
| rw = WACC | |
| t = periods | |
| 2. Forecast and discount FCFF for the post-horizon period, called the terminal period. | |
| Present value of terminal FCFF (FCFFT / (rw - g) / (1+rw)t] | |
| FCFF = free cash flows to the firm | |
| rw = WACC | |
| t = periods | |
| g = terminal growth rate | |
| 3. Sum the present values of the horizon and terminal periods to yield firm value. | |
| 4. Subtract the value of the firms debt (NNO) from the value of the firm. | |
| 5. Divide this amount by the number of shares outstanding to yield the estimated per share stock price | |
| note: | if the calculated per share price is higher than the current trading stock price, it means it is a good investment! |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Financial Management Core Concepts
Authors: Raymond Brooks
4th Edition
134730417, 134730410, 978-0134730417
