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Hi sir,
Would like to know whenever we are required to perform free cash flow analysis, how should we determine when to use FCFF or FCFE…?
thx…
Usually it will be free cash flow, discounted at the WACC.
However, it depends on what is asked for in the question, and what information is available.
I am afraid that there is no ‘rule’.
Hi…wish to clarify on this issue :
For Dec 2007 and June 2011, both questions require us to perform valuation for individual entity. But why for Dec 2007 (Burcolene) we do not need to calculate the present values…?…and for June 2011 (Fodder) we need to do so…?…What is the difference between them…?
Thanx…
Barcelona does require the present value!!
Because it is an inflating perpetuity it is not possible to discount in the normal way and so they have used the growth model formula – this does give the present value of an inflating perpetuity.
Hi sir, can you explain in a much more simpler way…?…i am still confused…
I supposed the same valuation formula has been used for both questions right…?
I cannot think of a simpler way.
On the formula sheet there is the growth model formula.
We usually use it to value shares and use the current dividend as Do. However, since the market value of a share is the present value of future dividends, the formula is calculating the present value of the growing perpetuity.
We can use the same formula to calculate the PV of and cash flows that are growing in perpetuity – we just use the current case flow as Do.
I think maybe my question is misunderstood. What i mean is, for dec 2007 burcolene, no discounting of free cash flow is done, but for jun 2011, for the valuation of fodder co, a discounting at its cost of capital is needed…?
Thanx…
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