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Valuation of shares – discounted cash flow basis

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Valuation of shares – discounted cash flow basis

  • This topic has 1 reply, 2 voices, and was last updated 8 years ago by John Moffat.
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  • March 8, 2017 at 3:22 am #376436
    salman7
    Participant
    • Topics: 77
    • Replies: 36
    • ☆☆

    Dear sir,

    In valuation of shares methods, we have discounted cash flow basis (PV of future cash flows) method.

    How this method gives the maximum value of shares as compared to dividend valuation model?
    The examiner of F9 is not interested in it because it is not widely used?

    Thanks,

    March 8, 2017 at 6:35 am #376476
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54755
    • ☆☆☆☆☆

    The dividend valuation formula is arriving at the PV of the future dividends and gives the MV of the equity.

    Discounting the total cash flows at the WACC gives a valuation of the whole business (just as discounting the cash flows from a project gives the value of the project). It is widely used, but it is more at P4 that this becomes relevant.

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  • The topic ‘Valuation of shares – discounted cash flow basis’ is closed to new replies.

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