Kodiak Company (dec 09) — OpenTuition Forums

FFahad7y ago

Part(a) Depreciation which has been added not deducted at the end ,when arriving at the free cashflow to equity. Part(b) i was assuming the growth after 3rd year i.e 4th year to infinity but it has been stated as terminal value as growth in 3rd year itself ?

John MoffatTutor7y ago#1

Part (a). I don't know what your question is. Depreciation has been added because it is not a cash flow. There is no reason why it should be deducted at the end. Part (b). The dividend valuation formula (which is what has been used) gives a PV at time 0 if the first flow is in 1 years time. Since the first flow is in 4 years time, which is 3 years later than in 1 years time, it gives a PV 3 years later as well i.e. at time 3 instead of at time 0. I explain all this in my lectures!

FFahad7y ago#2

i will stick to your technique which i have learnt during the course , some bbp answers really confuses me such as above.

John MoffatTutor7y ago#3

OK :-)

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