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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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).
But if you expect the debt level (for example) to change around, then would you want to use the expanded version?
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.
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Okay, thank you very much!
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?