[go: up one dir, main page]

0% found this document useful (0 votes)
22 views5 pages

Fcfe Stable Growth Model

Download as xls, pdf, or txt
Download as xls, pdf, or txt
Download as xls, pdf, or txt
You are on page 1/ 5

FCFEStableModel

FCFESTABLEGROWTHMODEL

Thismodelisdesignedtovaluetheequityinastablefirmonthebasisof
freecashflowstoequity,especiallywhentheyare
differentfromdividendspaid.

Assumptionsinthemodel:
1.Thefirmisinsteadystateandwillgrowatastablerateforever.
2.Thefirmdoesnotpayoutwhatitcanaffordtoindividends,i.e.,DividendsFCFE.

Userdefinedinputs
Theuserhastodefinethefollowinginputstothemodel:
1.CurrentEarningspershare
2.CapitalSpendingandDepreciationpershare
3.Changeinworkingcapitalpershare
4.Desireddebtlevelforfinancingworkingcapitalandcapitalspendingneeds.
5.CostofEquityorInputstotheCAPM(Beta,Riskfreerate,RiskPremium)
6.ExpectedGrowthRateinfreecashflowstoequityforever.

Page
FCFEStableModel

Pleaseenterinputstothemodel:
CurrentEarningspershare= $5.45 (incurrency) {Youcaninputallthenumbersfortheaggregatecompany,ifyousodesire}

CapitalSpending/share= $2.00 (incurrency)


Depreciation/share= $1.75 (incurrency) AswathDamodaran:
Chg.WorkingCapital/share= $0.60 (incurrency) Ifyousetyourperpetual
growthrateatanynumber
Desireddebtfinancingratio= 29.97% (inpercent) greaterthanzero,this
shouldbeno.
Doyouwanttooffsetcapitalexpendituresbydepreciationinthefuture? No (YesorNo)
Thereinvestmentratebaseduponyourinputsiscomputedtobe 10.96%
AswathDamodaran:
Doyouwanttorecomputethisreinvestmentratebaseduponfundamentals? Yes Yourreinvestmentrate
shouldbeconsistentwith
Ifyes,enterthereturnonequitythatyouexpectthisfirmtohaveinperpetuity 12% yourgrowthrate
Desireddebtfinancingratio= 29.97% (inpercent) assumptions.Ifyouanswer
yestothisquestion,you
shouldenterthereturnon
equitybelow.
Areyoudirectlyenteringthecostofequity?(YesorNo) No
Ifyes,entercostofequity= (inpercent)
Ifno,entertheinputsfortheCAPM
Betaofthestock= 1.1
Riskfreerate= 7% (inpercent)
RiskPremium= 5.50% (inpercent)

ExpectedGrowthRate= 6% (inpercent) Theexpectedgrowthrateforastablefirm

Page
FCFEStableModel

cannotbesignificantlyhigherthanthenominal
growthrateintheeconomyinwhichthefirm
operates.Itcanbelower.

Warnings:

Page
FCFEStableModel

ThisistheoutputfromtheGordonGrowthModel

FirmDetails:frominputsonpriorpage
CurrentEarningspershare= $5.45

(1Desireddebtfraction)* 70.03%

(CapitalSpendingDepreciation) $3.29 $2.30


(1Desireddebtfraction)* 70.03%

WorkingCapital $0.60 $0.42

FreeCashflowtoEquity= $2.73

CostofEquity= 13.05%

ExpectedGrowthrate= 6.00%

GordonGrowthModelValue= $40.97

Growth rate Value Valuevs.ExpectedGrowth


10.00% $98.28
9.00% $73.34 $120.00
8.00% $58.28
7.00% $48.19 $100.00
6.00% $40.97 $80.00
5.00% $35.54
ValueofStock

4.00% $31.31 $60.00


3.00% $27.93
$40.00
$20.00
$0.00 Page
10.0 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00
0% % % % % % % % %
$100.00
$80.00
FCFEStableModel

ValueofStock
$60.00
$40.00
2.00% $25.15
$20.00
$0.00
10.0 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00
0% % % % % % % % %

ExpectedGrowthRate

Page

You might also like