theonesmadeby thethree-stagedividend discountmodel,
butthefocusisonFCFEinsteadofdividends,makingitmore
suitedtovaluefirmswhosedividendsaresignificantlyhigher
orlowerthantheFCFE.Inparticular,itgivesmorerealistic
estimatesofvalueforequityforhigh-growthfirmsthatare
expectedtohavenegativecash flowstoequityin thenear
future.Thediscountedvalueofthesenegativecashflows,in
effect,capturestheeffectofthenewsharesthatwillbeissued
to fund the growth during the period, and thus indirectly
captures the dilution effect of value of equity per share today.
ILLUSTRATION 5.9: Three-Stage FCFE Model: Tsingtao
Breweries (China)
TsingtaoBreweriesproducesand distributesbeerand other
alcoholicbeveragesinChinaandaroundtheworldunderthe
Tsingtaobrand name.Asbeerconsumptionin Asiagrows,
Tsingtaohashighgrowthpotentialandwewillvalueitusing
a three-stage FCFE model, using the following assumptions:
In2004,Tsingtaoreportednetincome285.20millionChinese
yuan,ofwhich25.5millionCYwasincomefromcashand
marketablesecurities.Theresultingnoncashreturnonequity,
based onthebookvalueofequity andcash atthestartof
2004, is 8.06%:
To computetheequityreinvestment rate,welookedatthe
average net capital expenditure and working capital
investments over the past five years, as wellas new debt
issues over the period: