DCF valuation distressed company
HI, I am running a valuation of a distressed company, I made a DCF using FCFO, assuming they will survive for the next five years until the deadlines of their biggest debt, then I used a terminal value computed as a liquidation value. When I compute the value of the equity today, this number is negative, do you suggest some improvements, or other methods, I also used the option method.
Thank you for your help
Are you assuming that this company will go under in 5 years? The value of a company that's gonna liquidate in 5 years, intuitively, is gonna be very low.
Do you think I have to assume a terminal value as it will continue its operations? is It an error to assume that the terminal value is as liquidation?
If you assume the company will survive the next 5 years, then you don't want to use liquidation value as that wouldn't make any sense. Your terminal value should represent what the value of the cash flows of the company will look like past the 5 years you've projected. If you're assuming that it'll completely turn around, you could probably just calculate a normal terminal value.
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