How to build DCF for financial company?
I'm trying to build a DCF for a financial company, but am a bit confused about how to come up with FCF and WACC because a large portion of the company's income is from interest (i.e. the company borrows a substantial amount of money (e.g. through customer deposits) and lends this out at a higher interest rate).
In this case it doesn't seem to make sense to use FCF that equals EBIT(1-t)+D&A-capex-change in working capital, because this excludes the huge amount of interest income.
Also, for determining WACC, what should I use as the cost of debt (the rate on deposits it pays customers, or just the rate it pays on its bonds)?
Any ideas would be very much appreciated.
http://www.stern.nyu.edu/~adamodar/pdfiles/papers/finfirm.pdf
Thank you for the info... from that source it looks like I'll just try to discount dividends at the cost of equity.
Does anyone think this is incorrect?
Are you actually doing this for work? If so whoever is meant to be guiding you must really suck.
Yes you discount dividends at the cost of equity and that's it.
he works for lehman
Id aut eaque et accusantium vel sed. Magnam nihil non voluptatum hic accusantium magni. Eaque voluptas impedit in deleniti dolorem voluptates repellendus.
Dicta vitae aliquam sint et vel voluptatem. Nostrum ut itaque et omnis. Vel ex est quia in a delectus quaerat optio.
Porro et voluptatem ipsum officiis. Commodi rem tenetur omnis error omnis minus. Dolorem quam et iusto hic cupiditate.
Quia eligendi ab voluptatem qui assumenda sunt qui eum. Magnam et aliquid quam est.
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...