Question: When doing a DCF valuation, also known as Discounted Cash flow valuation, the firm's free cash flow is forecasted, and then the same free cash

"When doing a DCF valuation, also known as Discounted Cash flow valuation, the firm's free cash flow is forecasted, and then the same free cash flow is discounted back to the present using a discount rate, resulting in an overall value of the enterprise. DCF is a method of valuing a company in which the present value of all of the free cash flow a company can generate over a period of time is discounted at a rate that is determined by calculating the cost of capital of the same company, wherein the capital structure consists not only of equity but also of debt and preferred equity."

ABC has two main subsidiaries: DFG oil and gas pipelines distribution; and FGH oil and gas exploration. DFG and FGH are very close in revenue and assets, 50% each. DFG has a lower risk due to long term contracts with oil and gas companies with specific prices and volume forecasted. DFG oil and gas exploration has more risk. From histrorical point of view, 20% of new gas and oil exploration are DRY Holes, no gas or oil.

Should the DCF be one discount rate for all capital projects at the company?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

A company recently hired a payroll service provider to process its payroll-that service provider has essentially taken over the payroll function, and payroll represents A's the largest expense....

Instructions for valuation models: - Valuation based on a publicly traded comparable company analysis - Valuation based on a comparable precedent transaction analysis - Valuation based on a...

CASE 3 8 UNITED HOUSEWARES SPIN - OFF PLAN Sales of United Housewares have increased nearly 8 percent per year over the last four years, yet the firm's operating profit has failed to keep pace. "The...

Old MathJax webview Does broadway benefit from acquiring Landmark? How can Harris justify a $120 million bid for Landmark? Justify and Show with all the relevant calculations such as valuation of...

QUESTION 10 To overcome the potential shortcomings of single-year decision making metrics, many investors in real estate also perform multiyear discounted cash flow (DCF) valuation. DCF valuation...

Table 1. Stand-alone DCF Valuation of Blaine's Inc Forecast cash flow for valuation Forecast years Base year Em m m m m Em Year 2020 2021 2022 2023 2024 2025 Period 0 1 2 3 4 5 4,300.00 4.606.16...

2. Solve for the following: The zero growth model is a special case of what valuation model? a. Variable growth model b. Perpetuity valuation model c. Delta growth model d. Constant growth model e....

CASE 3 HOME PRODUCTS STOCK AND BOND VALUATION In all textbooks, the valuation of stocks and bonds is simply stated as the pres- ent value of all the future cash flows expected from the security. The...

Discuss and analyze Pfizer Inc. and its direct competitor. According to the photocopy , you need to demonstrate the data for the WACC including the weights and costs of each component. Then you use...

Please answer question using Nordstrom Inc. JWN data Overview. This should be very short, and presents your value hypothesis. Two sentences is enough if you put the right detail in it: Identify the...

Consider the superposition of coherent sources that have the same amplitude. The resultant amplitude of 100 of these wave is 70 V/m. Then the equation of each wave is given by

Wilmington Wire Company makes gold plated wire for the jewelry and electronic industries. Industry practice is to offer both date-of-shipment and date-of-order pricing at the customer's preference....

Bachelors CPC Exam Accounting - Compliance in Accounting A company is viewed as the result of more or less formal "contracts", in which several groups make some kind of contribution to the company,...

Draw a class diagram and its relationship based on the following statements. You can use any UML tool/software to represent your class diagram. Do NOT copy and paste your diagram, use the attachment...