Calculate the Intrinsic Value of Google

You will use the two-stage company-level Discounted Cash Flow (DCF) valuation model to calculate the intrinsic value of your chosen company.

1. Calculate the Free Cash Flow based on most recent fiscal year data:

• Estimate the free cash flows (FCF) available to the firm. you can use the below formula:

FCF = Cash Flow from Operations - Capital Expenditures + Interest * (1 - Tax Rate)

• The "Cash Flow from Operations" and "Capital Expenditures" can be found on the Statement of Cash Flows in Yahoo! Finance.
• The Interest expense (if any exists) is on the Income Statement.
• The Tax Rate can be calculated based on the Tax Expense and Net income (as was performed in the first course project).
• For additional details on these calculations please refer to thisexternal resource.

1. Specify the WACC

• For the discount value you should use the weighted average cost of capital (WACC). You can either use the value you calculated from the prior course project assignment or you can use the value generated by the websitewww.thatswacc.com.

1. Conduct a two-stage valuation

• You can now combine the two items above to estimate a present value of the firm. You should calculate a high-growth phase value and a terminal value.

1. High Growth Phase Value:For this phase, assume that in years 1 - 3 the Free Cash Flows are growing by 8% annually.
2. Terminal Value:For this phase assume the FCF grow at a constant growth rate of 2.5%.

• Calculate the present values of the above phases and add them together for the total present value of the company