How would you value a hot dog stand in midtown Manhattan using a discounted cash flow analysis
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“How would you value a hot dog stand in midtown Manhattan using a discounted cash flow analysis”
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Step 1: Calculate and Calculate and then project the unlevered free cash flows to infinity since we assume that the company is a going concern. However, since we cannot project the cash flows to infinity, we project free cash flows for a period of five or 10 years, or until the company reaches a steady state of growth. project unlevered free cash flow Step 2: Determine Weighted average cost of capital or (WACC) is a weighted average after-tax cost or required rate of return for different sources of capital for a company, i.e., debt, preferred and equity. the WACC Terminal value is the value of the company at the end of the projection period, which could be Year 5 or Year 10 or when the company reaches a steady state of growth. For example, if we project free cash flows for five years, the terminal value is the value of the company at the end of Year 5 or the value of the cash flows from Year 6 to infinity at the end of Year 5. Step 3: Calculate the terminal value Step 4: Calculate the Calculate the present value of the projected free cash flows and the terminal value at the appropriate discount rate, i.e., WACC. Add the present value of all the cash flows to get the enterprise value of the company. present value of the cash flows and add them to get the enterprise value of the company Since enterprise value = equity value + debt + preferred cash, equity value = enterprise value - debt - preferred + cash. Divide equity value by the fully diluted shares outstanding to get the stock price of the company. Step 5: Calculate stock price for a public company Step 1: Calculate and Calculate and then project the unlevered free cash flows to infinity since we assume that the company is a going concern. However, since we cannot project the cash flows to infinity, we project free cash flows for a period of five or 10 years, or until the company reaches a steady state of growth. project unlevered free cash flow Step 2: Determine Weighted average cost of capital or (WACC) is a weighted average after-tax cost or required rate of return for different sources of capital for a company, i.e., debt, preferred and equity. the WACC Terminal value is the value of the company at the end of the projection period, which could be Year 5 or Year 10 or when the company reaches a steady state of growth. For example, if we project free cash flows for five years, the terminal value is the value of the company at the end of Year 5 or the value of the cash flows from Year 6 to infinity at the end of Year 5. Step 3: Calculate the terminal value Step 4: Calculate the Calculate the present value of the projected free cash flows and the terminal value at the appropriate discount rate, i.e., WACC. Add the present value of all the cash flows to get the enterprise value of the company. present value of the cash flows and add them to get the enterprise value of the company Since enterprise value = equity value + debt + preferred cash, equity value = enterprise value - debt - preferred + cash. Divide equity value by the fully diluted shares outstanding to get the stock price of the company. Step 5: Calculate stock price for a public company
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For valuing a hotdpg stand in manhattan we will be using DCF approach as we use it for valuing firms ... View the full answer
Related Book For
Managerial Accounting A Focus on Ethical Decision Making
ISBN: 978-0324663853
5th edition
Authors: Steve Jackson, Roby Sawyers, Greg Jenkins
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