Company Value Formula
Company Value = Cash Flow / (Discount rate - Growth rate)
Question: Why is the discount rate subtracting growth rate?
For example, a growing company has the following cf:
Year 1: 100
Year 2: 103
Year 3: etc.
Growth rate: 3%
Discount rate: 10%
So the company value = 100 / (10% - 3%) = 1,429, meaning you would be willing to pay $1,429 for the company.
Est at quasi modi voluptatem expedita autem. Dignissimos tempore dolor accusamus.
Quod totam ad ullam quidem. Minima aut non et sed similique voluptas et autem.
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...