Aswath Damodaran 490
Generic DCF Valuation Model
Cash flows
Firm: Pre-debt cash
flow
Ecaqsuhit yflo: Awsfter debt
Expected Growth
Firm: Growth in
Operating Earnings
Equity: Growth in
Net Income/EPS
CF 1 CF 2 CF 3 CF 4 CF 5
Forever
Firm is in stable growth:
Grows at constant rate
forever
Terminal Value
.........CFn
Discount Rate
Firm:Cost of Capital
Equity: Cost of Equity
Value
Firm: Value of Firm
Equity: Value of Equity
DISCOUNTED CASHFLOW VALUATION
Length of Period of High Growth
Sets up the basic inputs:
1. Discount rates
2. Cash flows
3. Expected Growth
4. Length of the period that they can sustain a growth rate higher than the
growth rate of the economy.
