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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! |
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