*
DCF valuation methodSuper-normal growth modelApplications: single CF, annuity, perpetuity, uneven CFs, bond, stock, etc.
LECTURE 2 Valuation Basics
(Chapters 4, 6, 7)
*
Amount of cash flows expectedRisk of the cash flows Timing of the cash flow stream
Factors that Determine Value
*
DCF Method: General Formula
Finding PVs is discounting. The discount factor i is determined by the cost of capital invested.
*
10%
Single Cash Flow
100
0
1
2
3
PV = ?
What’s the PV of $100 due in 3 years if i = 10%?
*
Financial Calculator Setup
BGN END
P/Y 1
FORMAT: DEC 4 or larger
*
Financial Calculator
Solution
s
N I/YR PV PMTFV
?
N = 3, I/YR = 10, PMT = 0, FV = 100
CPT, PV
-75.13
/
INPUTS
OUTPUT
*
Spreadsheet
.
1. *
DCF valuation methodSuper-normal growth modelApplications:
single CF, annuity, perpetuity, uneven CFs, bond, stock, etc.
LECTURE 2 Valuation Basics
(Chapters 4, 6, 7)
*
Amount of cash flows expectedRisk of the cash flows Timing of
the cash flow stream
Factors that Determine Value
*
DCF Method: General Formula
2. Finding PVs is discounting. The discount factor i is determined
by the cost of capital invested.
*
10%
Single Cash Flow
100
0
1
2
3
PV = ?
What’s the PV of $100 due in 3 years if i = 10%?
*
