Here is a real life case study I need a bit of help with.
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Government & buyer have a 50% stake each of a Mine producing soda ash and salt.
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The Government is currently pursuing a privatization exercise and wants to sell it's 50% stake
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The buyer who has a right of first refusal offers to buy out the 50% government stake
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Mine currently generates 90Million dividends 2017 FY
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Buyer offers to pay 400Million i.e buyer values Mine at 800Million
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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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