Publication number: ELQ-67808-1
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Two-Stage Free Cash Flow to Equity (FCFE) Discount Model
Value the equity in a firm with two stages of growth
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- Cost of Equity
- Proportion of Debt: Capital Spending
- Proportion of Debt: Working Capital
- Current Earnings per share
- Change in Working Capital
- Current FCFE
Growth Rate in Earnings per share
- Growth Rate in capital spending, depreciation and working capital
- Working Capital as percent of revenues
- Free Cashflow to Equity
- Present Value
- Growth Rate in Stable Phase
- FCFE in Stable Phase
- Cost of Equity in Stable Phase
- Price at the end of growth phase
- Present Value of FCFE in high growth phase
- Present Value of Terminal Price
- Value of the stock
- Value of assets in place
- Value of stable growth
- Value of extraordinary growth
- Value of the stock
Assumptions in the model:
1. The firm is expected to grow at a higher growth rate in the first period.
2. The growth rate will drop at the end of the first period to the stable growth rate.
3. The free cashflow to equity is the correct measure of expected cashflows to stockholders.
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