Nente Co (June \'12) — OpenTuition Forums

Ffrahmani910y ago

Hi John, In part a of the question, do we not discount the free cash flow when arriving to the Equity value of Nente. In the answer booklet it has not been discounted? thanks

John MoffatTutor10y ago#1

But they have discounted!! What they have done is use the dividend growth formula from the formula sheet. This formula gives the present value of any growing perpetuity (not only growing dividends).

Ffrahmani910y ago#2

Thanks John. I think what I got confused about is that in other questions when calculating the value of a project and its perpetuity phase its then discounted at prior years discount rate as well as using the DVM formula. However, this question is relating to valuing the firm now so we don't need to discount prior year. Correct me if I am wrong? Thanks

John MoffatTutor10y ago#3

No - you are correct :-)

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