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    Fcfe Stable Growth Model

    Uploaded by

    Jagr
    This model values a stable firm using free cash flows to equity (FCFE) rather than dividends, assuming steady growth forever. The user inputs include current earnings, capital spending, depreciation, working capital changes, debt ratio, cost of equity, and expected long-term growth rate. The model calculates FCFE and the intrinsic value using the Gordon Growth model, showing how value changes with different growth rates.

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    © All Rights Reserved
    Download as XLS, PDF, TXT or read online from Scribd

    Fcfe Stable Growth Model

    Uploaded by

    Jagr
    20 views5 pages
    This model values a stable firm using free cash flows to equity (FCFE) rather than dividends, assuming steady growth forever. The user inputs include current earnings, capital spending, depreciation, working capital changes, debt ratio, cost of equity, and expected long-term growth rate. The model calculates FCFE and the intrinsic value using the Gordon Growth model, showing how value changes with different growth rates.

    Original Title

    fcfest.xls

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    This model values a stable firm using free cash flows to equity (FCFE) rather than dividends, assuming steady growth forever. The user inputs include current earnings, capital spending, depreciation, working capital changes, debt ratio, cost of equity, and expected long-term growth rate. The model calculates FCFE and the intrinsic value using the Gordon Growth model, showing how value changes with different growth rates.

    Copyright:

    © All Rights Reserved
    Download as XLS, PDF, TXT or read online from Scribd
    Download as xls, pdf, or txt
    20 views5 pages

    Fcfe Stable Growth Model

    Uploaded by

    Jagr
    This model values a stable firm using free cash flows to equity (FCFE) rather than dividends, assuming steady growth forever. The user inputs include current earnings, capital spending, depreciation, working capital changes, debt ratio, cost of equity, and expected long-term growth rate. The model calculates FCFE and the intrinsic value using the Gordon Growth model, showing how value changes with different growth rates.

    Copyright:

    © All Rights Reserved
    Download as XLS, PDF, TXT or read online from Scribd
    Download as xls, pdf, or txt
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    FCFEStableModel

    FCFESTABLEGROWTHMODEL

    Thismodelisdesignedtovaluetheequityinastablefirmonthebasisof
    freecashflowstoequity,especiallywhentheyare
    differentfromdividendspaid.

    Assumptionsinthemodel:
    1.Thefirmisinsteadystateandwillgrowatastablerateforever.
    2.Thefirmdoesnotpayoutwhatitcanaffordtoindividends,i.e.,DividendsFCFE.

    Userdefinedinputs
    Theuserhastodefinethefollowinginputstothemodel:
    1.CurrentEarningspershare
    2.CapitalSpendingandDepreciationpershare
    3.Changeinworkingcapitalpershare
    4.Desireddebtlevelforfinancingworkingcapitalandcapitalspendingneeds.
    5.CostofEquityorInputstotheCAPM(Beta,Riskfreerate,RiskPremium)
    6.ExpectedGrowthRateinfreecashflowstoequityforever.

    Page
    FCFEStableModel

    Pleaseenterinputstothemodel:
    CurrentEarningspershare= $5.45 (incurrency) {Youcaninputallthenumbersfortheaggregatecompany,ifyousodesire}

    CapitalSpending/share= $2.00 (incurrency)


    Depreciation/share= $1.75 (incurrency) AswathDamodaran:
    Chg.WorkingCapital/share= $0.60 (incurrency) Ifyousetyourperpetual
    growthrateatanynumber
    Desireddebtfinancingratio= 29.97% (inpercent) greaterthanzero,this
    shouldbeno.
    Doyouwanttooffsetcapitalexpendituresbydepreciationinthefuture? No (YesorNo)
    Thereinvestmentratebaseduponyourinputsiscomputedtobe 10.96%
    AswathDamodaran:
    Doyouwanttorecomputethisreinvestmentratebaseduponfundamentals? Yes Yourreinvestmentrate
    shouldbeconsistentwith
    Ifyes,enterthereturnonequitythatyouexpectthisfirmtohaveinperpetuity 12% yourgrowthrate
    Desireddebtfinancingratio= 29.97% (inpercent) assumptions.Ifyouanswer
    yestothisquestion,you
    shouldenterthereturnon
    equitybelow.
    Areyoudirectlyenteringthecostofequity?(YesorNo) No
    Ifyes,entercostofequity= (inpercent)
    Ifno,entertheinputsfortheCAPM
    Betaofthestock= 1.1
    Riskfreerate= 7% (inpercent)
    RiskPremium= 5.50% (inpercent)

    ExpectedGrowthRate= 6% (inpercent) Theexpectedgrowthrateforastablefirm

    Page
    FCFEStableModel

    cannotbesignificantlyhigherthanthenominal
    growthrateintheeconomyinwhichthefirm
    operates.Itcanbelower.

    Warnings:

    Page
    FCFEStableModel

    ThisistheoutputfromtheGordonGrowthModel

    FirmDetails:frominputsonpriorpage
    CurrentEarningspershare= $5.45

    (1Desireddebtfraction)* 70.03%

    (CapitalSpendingDepreciation) $3.29 $2.30


    (1Desireddebtfraction)* 70.03%

    WorkingCapital $0.60 $0.42

    FreeCashflowtoEquity= $2.73

    CostofEquity= 13.05%

    ExpectedGrowthrate= 6.00%

    GordonGrowthModelValue= $40.97

    Growth rate Value Valuevs.ExpectedGrowth


    10.00% $98.28
    9.00% $73.34 $120.00
    8.00% $58.28
    7.00% $48.19 $100.00
    6.00% $40.97 $80.00
    5.00% $35.54
    ValueofStock

    4.00% $31.31 $60.00


    3.00% $27.93
    $40.00
    $20.00
    $0.00 Page
    10.0 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00
    0% % % % % % % % %
    $100.00
    $80.00
    FCFEStableModel

    ValueofStock
    $60.00
    $40.00
    2.00% $25.15
    $20.00
    $0.00
    10.0 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00
    0% % % % % % % % %

    ExpectedGrowthRate

    Page

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