Learning Center
Plans & pricing Sign in
Sign Out

Cash Flow to Firm Valuation (Stable Growth)


Cash Flow to Firm (CFF) Valuation Model of an organizations with stable growth rates.

More Info
									                                                   FCFF Stable Model

    Cash Flow to Firm (CFF) STABLE GROWTH MODEL
  This model is designed to value a stable firm on the basis of free cashflows to firm.
Assumptions in the model:
1. The firm is in steady state and will grow at a stable rate forever.
2. The firm's leverage is known and constant.

User defined inputs
The user has to define the following inputs to the model:
1. Current EBIT and tax rate
2. Capital Spending and Depreciation
3. Change in working capital
4. Debt ratio
5. Cost of Equity or Inputs to the CAPM (Beta, Riskfree rate, Risk Premium) and Cost of Debt
6. Expected Growth Rate in free cashflows to firm forever.

Please enter inputs to the model:
Current EBIT                                 $1,689.00          (in currency)

                                                           Page 1
                                                  FCFF Stable Model

Current tax rate =                              30%

Capital Expenditures                         $1,500.00           (in currency)
Depreciation =                                $630.00            (in currency)
Change in Working Capital =                   $200.00            (in currency) If negative, enter zero.
Do you want to change the capital expenditure/depreciation ratio?                         Yes          (Yes or No)
If so, enter capital expenditures as a percent of depreciation                           120%
Debt ratio =                                  29.97%             ( in percent)

Are you directly entering the cost of equity? (Yes or No)                                 No
If yes, enter cost of equity =                                   (in percent)
If no, enter the inputs for the CAPM
Beta of the stock =                              1.1
Riskfree rate =                                  7%              (in percent)
Risk Premium=                                  5.50%             (in percent)

Enter the cost of debt =                       8.50%                             This is a pre-tax cost of borrowing.

Expected Growth Rate =                           5%              (in percent)    The expected growth rate for a stable firm
                                                                                 cannot be significantly higher than the nominal
                                                                                 growth rate in the economy in which the firm
                                                                                 operates. It can be lower.


                                                          Page 2
                                               FCFF Stable Model

                   Capital Spending seems high relative to depreciation

This is the output from the Model
Firm Details: from inputs on prior page
EBIT (1- tax rate) =                                                      $1,182.30

                                                       Page 3
                                                       FCFF Stable Model

- (Capital Spending - Depreciation)                                          $126.00
- Change in Working Capital                                                  $200.00
Free Cashflow to Firm =                                                      $856.30

Cost of Equity =                                        13.05%
Cost of Debt =                                           5.95%
Cost of Capital =                                       10.92%
Expected Growth rate =                                   5.00%

                    Value of Firm                                           $15,182.29

  Growth rate           Value
    7.00%            $23,360.80                                      Value vs. Expected Growth
    6.00%            $18,440.76
    5.00%            $15,182.29
    4.00%            $12,865.29                        $25,000.00
    3.00%            $11,133.23
    2.00%             $9,789.43                        $20,000.00
                                      Value of Stock

    1.00%             $8,716.51



                                                                7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00%
                                                                            Expected Growth Rate

                                                            Page 4
FCFF Stable Model

     Page 5

To top