Re: DCF - can you project with a change in capital structure
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Re: measuring capital charge
We love Damodaran, but sometimes his approach is still academic and not real world. In cases of firms with a "rent vs. buy" decision that is related to COGS, mostly transport companies, such as airlines or rental cars, indeed we look at EBITDAR instead of EBITDA and our "Adjusted Enterprise Value... We love Damodaran, but sometimes his approach is still academic and not real world.

In cases of firms with a "rent vs. buy" decision that is related to COGS, mostly transport companies, such as airlines or rental cars, indeed we look at EBITDAR instead of EBITDA and our "Adjusted Enterprise Value" must include both the operating and capital leases in the capital structure.

This is covered in our Private Company Valuation - Valuation Nuances course where we go over this very topic and how to proper account for it in the context of valuation. Read More

Re: DCF - can you project with a change in capital structure
1) Yes and no. DCF does not assume capital structure constant. You are using latest available capital structure for DCF because DCF is as of a specific point in time since you are discounting both the FCFF and TV to today. Hence, you use latest available figures. 2) By virtual of debt repayments ... 1) Yes and no. DCF does not assume capital structure constant. You are using latest available capital structure for DCF because DCF is as of a specific point in time since you are discounting both the FCFF and TV to today. Hence, you use latest available figures.

2) By virtual of debt repayments or borrowings that are built into the model in the future, capital structure is indeed NOT staying constant. Per your question on options, you STILL use as of today (latest available) for the reason addressed in #1's answer above.

3) FCFE is never relevant other than project finance / infrastructure and real estate development.

4) Never use FCFE other than project finance / infrastructure and real estate development.

5) Ditto, third time: Never use FCFE other than project finance / infrastructure and real estate development.

6) Ditto

7) DCF is used as a sanity check to say "IF" my assumptions were correct, what's "intrinsic value"? Or said another way, for sensitivity - IF this scenario happens, what's the impact to value destruction, etc. You are correct in that many folks think DCF is the end-all, is-all final answer. On the contrary, it's the STARTING POINT for us to ask the right QUALITATIVE questions.

8) YES indeed it is certainly possible that a company's stock price goes to ZERO or negative. That falls under distressed - completely different topic though! (see our Distressed course where we focus on fulcrum security).

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Re: redeemable vs non redeemable non controlling interest (4 questions)
1) Please treat all MI/NCI as a liability. We do not want to treat it as equity, so always recast into liability item. The accounting is irrelevant for financial modeling purposes. 2) Yes, correct, we do not differentiate between redeemable and non-redeemable for valuation purposes. 3) Typically i... 1) Please treat all MI/NCI as a liability. We do not want to treat it as equity, so always recast into liability item. The accounting is irrelevant for financial modeling purposes.
2) Yes, correct, we do not differentiate between redeemable and non-redeemable for valuation purposes.
3) Typically it is the parent that has a redeemable stake not the non-controlling stakeholder.
4) By definition, MI/NCI is less than 50% otherwise you would not be consolidating. Read More

Re: Converting from one inventory accounting method into another to compare apple to apple
You would simply adjust inventory and COGS figures for LIFO reserve as described in the course!