The document discusses DCF (Discounted Cash Flow) valuation methods, focusing on the super-normal growth model and its applications in various financial contexts, including cash flows, bonds, and stocks. It explains the importance of cash flow expectations, associated risks, and timing in determining value through the DCF method and provides calculations for present value using financial calculators and spreadsheets. Key concepts such as discount factors and cost of capital are emphasized in the valuation process.

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DCF valuation methodSuper-normal growth modelApplications:
single CF, annuity, perpetuity, uneven CFs, bond, stock, etc.
LECTURE 2 Valuation Basics
(Chapters 4, 6, 7)
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Amount of cash flows expectedRisk of the cash flows Timing of
the cash flow stream
Factors that Determine Value
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DCF Method: General Formula

2. Finding PVs is discounting. The discount factor i is determined
by the cost of capital invested.
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10%
Single Cash Flow
100
0
1
2
3
PV = ?
What’s the PV of $100 due in 3 years if i = 10%?
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3. Financial Calculator Setup
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Financial Calculator
Solution
s

4. N I/YR PV PMTFV
?
N = 3, I/YR = 10, PMT = 0, FV = 100
CPT, PV
-75.13
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INPUTS
OUTPUT
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5. Spreadsheet