DCF Question - Discount question?
I have a simple question about DCF analysis.
Let's say I was going to buy a company on July 1, 2010.
I have all of my FCF's projected out, and my terminal value calculated, also.
Let's say that YTD (6/30/10) actual 2010 FCF is $60 and the projected year-end FCF is $110 (so you're projecting $50 additional FCF for the remaining 6 months).
Would my 2010 cash flow number that I need to discount back to PV be $110 (representing all of 2010) or only $50 (representing only July-December, the part of 2010 that I would own the company)?
I would really appreciate any help on this. Please let me know if my question doesn't make sense, and I will re-word it.
Thank you.
If its actual then its not free cash flow, its cash on the balance sheet and isn't getting discounted unless its being spun off through a change in working capital. Your first discounted CF would be the stub period CF of 50 million. And you'd discount -- depending on your discounting methodology -- at either the end of the year or half way between now and year end.
DCF values the cash flows a company will generate not the cash flows the company HAS generated.
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