Aswath Damodaran 527
Disney: Costs of Capital and Present Value
Year Cost of capital FCFF PV of FCFF
1 8. 59 % $ 876. 06 $ 806. 74
2 8. 59 % $ 931. 96 $ 790. 31
3 8. 59 % $ 991. 43 $ 774. 21
4 8. 59 % $ 1 , 054. 70 $ 758. 45
5 8. 59 % $ 1 , 122. 00 $ 743. 00
6 8. 31 % $ 1 , 255. 13 $ 767. 42
7 8. 02 % $ 1 , 393. 77 $ 788. 91
8 7. 73 % $ 1 , 536. 80 $ 807. 42
9 7. 45 % $ 1 , 682. 90 $ 822. 90
10 7. 16 % $ 1 , 830. 62 $ 835. 31
PV of cashflows during high growth = $ 7 , 894. 66
The cost of capital changes over time, since both beta and leverage change over
time. As a result, the present value computation each year has to use the
compounded cost of capital. To compute the present value of the cashflows in
years 6 through 10, we have to use the compounded cost of capital over the
previous years. To illustrate, the present value of $1536.80 million in cashflows
in year 8 is:
Present value of cashflow in year 8 = 1 536.80/
(1.0859^5 1.08311.0802*1.0773)
