Here is a real life case study I need a bit of help with.
Government & buyer have a 50% stake each of a Mine producing soda ash and salt.
The Government is currently pursuing a privatization exercise and wants to sell it's 50% stake
The buyer who has a right of first refusal offers to buy out the 50% government stake
Mine currently generates 90Million dividends 2017 FY
Buyer offers to pay 400Million i.e buyer values Mine at 800Million
Government wants 800Million i.e government values Mine at 1.8Billion
Now let's get to valuation:
90 Million per annum using a DCF over 10 years should lead to a valuation of about 550Million (0.61*900). Is the government's price justified?
Assuming no growth is experienced into the future.
It seems like you're oversimplifying your DCF valuation. Why are you just multiplying the sum of the 10-year projection period by 0.61? It's a lot more complicated than that.
Using a 10% discount rate over 10 years is equivalent to multiplying by 0.61 if you hold yearly dividends the same, assuming no growth from synergies etc. Try it in an excel spreadsheet.
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