Basic FM: Discounted Cash Flow

Re: Core Model DCF - terminal cashflow

This is explained in our Basic FM course in the DCF section. Pls view the other posts in the valuation topics (or search for more info). In short, CapEx and D&A cancel out over time for a mature company and we assume minimal changes to WC.

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by WST Expert 1.

added 10 years ago

Re: Core Model DCF - terminal cashflow

You're gonna have to give me more than this. Even if capex/depr cancel out (which would never happen unless you spend exactly the same capex money for exactly the same capex items for infinity) by taking EBIT at the end of the fifth year this massively overestimates the TV which is discounted at fac... Read More

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by Guest 1.

added 10 years ago

Re: Core Model DCF - terminal cashflow

Sorry, to clarify, it is supposed to be Tax-Effected EBIT not just EBIT.

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by WST Expert 1.

added 10 years ago

Re: Core Model DCF - terminal cashflow

I know that, my question still stands...

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by Guest 1.

added 10 years ago

Re: Core Model DCF - terminal cashflow

We are saying that NORMALIZED Terminal Year Unlevered Free Cash Flow is proxied with Tax-Effected EBIT b/c a mature, slow growth company has characteristics in which CapEx and depreciation net out over time. Please view the D&A video (part of our FREE resources in your login) for explanation as ... Read More

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by WST Expert 1.

added 10 years ago

Re: Core Model DCF - terminal cashflow

You're not answering my question or rather have not convinced me that your approach is technically correct. What I am saying is that in my view it is not correct to do this when doing a DCF especially when the difference in the terminal year between the tax effected EBIT is so much larger than the ... Read More

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by Guest 1.

added 10 years ago

Re: Core Model DCF - terminal cashflow

We can agree to disagree. However, note that if the Tax-Effected EBIT is much larger than FCFF then technically speaking, the perpetual growth method really shouldn't apply since it hasn't reached "run-rate" slow growth mode yet. We stand by our position that slow growth companies should ... Read More

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by WST Expert 1.

added 10 years ago

Re: Core Model DCF - terminal cashflow

Agreed and the p growth method is simply not a good valuation methodology for the company in question. I do agree with you that in slow growth companies DDA and Capex should be close

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by Guest 1.

added 10 years ago

Re: Core Model DCF - terminal cashflow

Great! let us know if we can assist further.

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by WST Expert 1.

added 10 years ago

Basic FM: Discounted Cash Flow

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