Buffett and a Columbia professor (forgot his name) said just use something like 10% as discount rate, but is that discount rate applied to FCF to equity? or FCF to the firm?
So if I discounting FCFF using WACC, if the firm has 40% debt, is the WACC = 40% (debt cost) * (1-tax rate) + 60% (10%)? Am I making sense? Tks.
| +59 | Looking for a Fund Manager to partner with to start a new fund. | 28 | 2d | |
| +36 | How to destress at Pod HF? | 16 | 1d | |
| +25 | Any R course recommendations? | 14 | 3d | |
| +24 | Starting Personal Account | 12 | 5d | |
| +22 | Fastes PM progression ever seen? | 29 | 8h | |
| +20 | Track Record Expectation For PM's | 29 | 21h | |
| +17 | How extroverted is the junior MMHF job? | 5 | 2d | |
| +16 | HF perspective on Google (Alphabet) | 5 | 2d | |
| +14 | Recommend Pass for MM HF Case Study | 4 | 3d | |
| +13 | Why don't MMs do any activism? | 10 | 17h |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
I dont know what the above mentioned guys talked about but I will assume they were talking about discounting 10% to every cash flowing in (FCFF).
Although most of the discount rates for all companies fall around 10% discount rate, each firm is different meaning a deviation in the rate. Please do research on similar firms and apply similar rate (for doing surface level dcf).
Meaning:
40%[Cost of Debt (which has tax deduction built-in)] + 60%[Cost of Equity( x rate)] = 10%
this is incorrect - buffet uses the 10 year treasury yield in DCF to arrive at Fair Value and then he buys at a huge discount to that. The theory is that he is basically buying an asset with a risk profile of a 10 year treasury with a yield of 10%+ basically.
That is why I said, I don't know what those guys do. Could you explain further or link something as how he comes to the fair value? I am just interning at a new shop now, don't habe the grasp of all the valuation methods.
Thank you.
Explicabo assumenda rerum aut error eum vitae voluptate qui. Molestias rerum et vitae voluptates ipsa sapiente et pariatur. Totam et debitis pariatur fuga beatae. Distinctio laborum error non eum qui sapiente asperiores quibusdam. Sapiente culpa quis omnis ipsam cupiditate. Nesciunt et qui temporibus necessitatibus omnis et. Commodi voluptatem sunt ipsam.
Est repellendus labore qui quisquam. Dolorum ut exercitationem sit nesciunt consequuntur quidem architecto. Et veritatis qui inventore voluptas dicta vel.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...