DCF Flashcards
WACC=?
Cost of equity * proportion of equity
+ cost of debt * proportion of debt * (1-T)
+ cost of prefs * proportion of prefs
CAPM stands for
Capital asset pricing model
CAPM =?
CAPM=
risk free rate + levered beta * market risk premium
(Market risk premium = market rate - risk free rate)
Lev beta =?
Unlev beta (1+ [(1-T) total debt/equity])
Unlev beta =?
Lev beta / (1+ [(1-T)* total debt/equity])
Is lev beta or unlev beta larger?
Lev beta
Diff ways to calculate cost of equity
- CAPM
- dividend capitalization model
Dividend capitalization model is aka
Dividend growth model
Dividend growth model is aka
Dividend capitalization model
Dividend growth model what is it used for and what is the formula
Used to calc cost of equity
Aka divisent capitalization model
= dividends/share price + growth rate of dividends
Do you use unlev or lev beta in CAPM?
Lev
What discount rate do you use for lev DCF
Cost of equity
What discount rate do you use for unlev DCF
WACC
DDM =?
Current stock price = Next dividend payment / (required rate of return - growth rate)
Gordon growth model =?
Current stock price = Next dividend payment / (required rate of return - growth rate)
Steps to use the terminal exit multiple in DCF
1) get EV/ EBITDA or EV/ EBIT multiple of peers
2) apply to last year’s EBITDA calc
3) get EV, and discount back to current time period
DCF calcs steps for EV
Similar to FCFF calc for each period
EBIT * (1-T) + DA - change in NWC - capex
Get NPV + NPV of terminal value using WACC
DCF steps for equity value
Similar to FCFE calc for each period
NI + DA - change in NWC - caped - mandatory debt repayment
Get NPV + NPV of terminal value using cost of equity
Go from EV to equity value
Equity value = EV - net debt
