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anonymous

  • 5 years ago

Professor: If creating a FCFE valuation model should you do it on a per-share basis or is it better to start with Net Income? And if you do start with Net Income is the fundamental determinint of growth still b(ROC+D/E(ROC-interest rate(1-tax rate))?

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  1. anonymous
    • 5 years ago
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    It is better to do it in aggregate terms... And your growth rate, assuming your ROE is stable, is b * ROE (you don't need to use the expanded version).

  2. anonymous
    • 5 years ago
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    But if you expect the debt level (for example) to change around, then would you want to use the expanded version?

  3. anonymous
    • 5 years ago
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    If you expect the debt level to change, it is much better to either use a FCFF model or do a detailed forecast starting with revenues, working through margins and coming down to cash flows.

  4. anonymous
    • 5 years ago
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    Okay, thank you very much!

  5. anonymous
    • 5 years ago
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    So if you are valuing a firm with a stable level of debt or one that will not change a great deal than using a FCFE model is better? And if valuing a company whose debt level (D/(D+E)) is expected to change than use the FCFF model?

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