DCF and Future Share Price

So hypothetically if you calculate the fair value of the share price of a company to be $100 using the DCF model and a discount rate of 10% over a 10 year period, would that mean by the end of the ten years, if the actual share price of the company fell in line with your predictions, the share price would increase by 10% annually, so by the end of the 10 year period in this case the share price would be $253? Thanks.

Comments (12)

 
  • Analyst 1 in IB-M&A
Feb 22, 2021 - 6:34pm

Your share price would increase because you've earned the equity upside after your cash flows have come in over those years. You have to remember that it's based on projections off of your cash flows. At the end of year 10 to get a share value, you need to project out another 10 years and so on. Your projections would have to be consistent throughout. At this point, you should use the perpetuity formula

 
Feb 25, 2021 - 6:11am

So in this example:

Say I calculated the fair value using the perpetuity formula, would that mean each year the share price should increase by 10%, if I bought at fair value and my predictions are correct, and if I, like I said earlier, calculated this over a 10 year period, the share price at the end would by fairvalue*1.1^10?

You're saying it would grow at a rate higher then 10%? If so what's the best way to predict the companies share price in 10 years? Thanks.

Start Discussion

Popular Content See all

LETS FKING GO BOYS
+130IBby Intern in Corporate Finance">Intern in CorpFin
You Did it Citi
+120OFFby 2nd Year Analyst in Investment Banking - Industry/Coverage">Analyst 2 in IB - Ind
HELP: Sticky Situation with Boss
+105OFFby 2nd Year Analyst in Investment Banking - Mergers and Acquisitions">Analyst 2 in IB-M&A
Idgaf anymore
+29IBby 1st Year Analyst in Investment Banking - Industry/Coverage">Analyst 1 in IB - Ind
Anyone else just want out of this shit?
+28IBby 2nd Year Analyst in Investment Banking - Generalist">Analyst 2 in IB - Gen
Evercore Target Schools?
+26BSCHby Prospective Monkey in Investment Banking - Mergers and Acquisitions">Prospect in IB-M&A
To Snitch or not to Snitch?
+18OFFby 2nd Year Analyst in Investment Banking - Industry/Coverage">Analyst 2 in IB - Ind

Total Avg Compensation

March 2021 Investment Banking

  • Director/MD (9) $911
  • Vice President (31) $349
  • Associates (162) $231
  • 2nd Year Analyst (97) $151
  • Intern/Summer Associate (92) $144
  • 3rd+ Year Analyst (23) $145
  • 1st Year Analyst (370) $131
  • Intern/Summer Analyst (306) $82

Leaderboard See all

1
LonLonMilk's picture
LonLonMilk
98.5
2
Jamoldo's picture
Jamoldo
98.4
3
Secyh62's picture
Secyh62
98.3
4
CompBanker's picture
CompBanker
97.8
5
redever's picture
redever
97.7
6
frgna's picture
frgna
97.6
7
Addinator's picture
Addinator
97.6
8
Edifice's picture
Edifice
97.5
9
NuckFuts's picture
NuckFuts
97.5
10
bolo up's picture
bolo up
97.5