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This model is designed to value the equity in a firm, with two stages of growth, an ini
period of higher growth and a subsequent period of stable growth.
Assumptions
1. The firm is expected to grow at a higher growth rate in the first period.
2. The growth rate will drop at the end of the first period to the stable growth rate.
3. The free cashflow to equity is the correct measure of expected cashflows to stockholders.
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Two-Stage FCFE Discount Model
Earnings Inputs
Do you want to use the historical growth rate? Yes (Yes or No)
If yes, enter EPS from five years ago = $0.49 (in currency)
Do you want to calculate the growth rate from fundamentals? Yes (Yes or No)
If yes, enter the following inputs:
Net Income Currently = $1,077.00 (in currency)
Interest Expense Currently = $53.85 Last year (in currency)
Book Value of Debt = $600.00 $550.00 (in currency)
Book Value of Equity = $5,445.00 $5,130.00 (in currency)
Tax Rate on Income= 36.00% (in percent)
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Two-Stage FCFE Discount Model
Beta
Will the beta to change in the stable period? Yes (Yes or No)
If yes, enter the beta for stable period = 1.1
Do you want to keep the current fraction of working capital to revenues? Yes (Yes or No)
Specify working capital as a percent of revenues: 40% (in percent)
Do you want to use the current debt ratio as your desired mix? Yes (Yes or No)
If no, enter the following inputs for financing mix,
Desired debt financing proportion - Capital Spending (in percent)
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Two-Stage FCFE Discount Model
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If you are going to
Aswath Damodaran:
assume perpetual
Yes or No.
growth, youIf yes, enter
should
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Two-Stage FCFE Discount Model that
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Two-Stage FCFE Discount Model
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Two-Stage FCFE Discount Model
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Two-Stage FCFE Discount Model
el
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Two-Stage FCFE Discount Model
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Two-Stage FCFE Discount Model
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Two-Stage FCFE Discount Model
swath Damodaran:
you are going to
swath Damodaran:
sume perpetual
s or No.
owth, youIf yes, enter
should
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here and
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ake surefirm
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,preciation
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urterminal year.
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Page
you are going to
swath Damodaran:
sume perpetual
s or No.
owth, youIf yes, enter
should
eswer
return
no on equity
here and
at your
ake surefirm
thatwill
caphave
ex Two-Stage FCFE Discount Model
perpetuity
higher thanbelow. If
,preciation
enter capinex as a
rcent of
urterminal year.
preciatiion.
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Two-Stage FCFE Discount Model
5 Terminal Year
$11.13 $11.79
$4.48 $4.91
$2.51 $0.99
$4.13 $5.90
$2.13
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Two-Stage FCFE Discount Model
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