DCF Model - Circular References

Hi,

I'm trying to set up a simple DCF in Exel but get constantly a REF-error in my calculations for fully diluted shares (although I've allowed iterative calculations). In fact, I just tried to replicate an example from a textbook. Can someone help me out and spot the mistake?

 

hominem's comment should fix it.

For cases where a model is supposed to use circular references (interest expense on debt, financing fees for debt raise, etc) you can build in a circ switch. Designate any cell as your "switch". The switch will either have value 0 or value 1.

In the portion of the model that is circular, write the following formula: =if(A1,desired calculation,0) where A1 is your switch cell. Because A1 is boolean, you can just say =if(A1, ...), you don't need to specify =if(A1=1, ...). To make things easier, you can assign name "circ" to cell A1 using the name manager in the formula tab in excel. Then your formula is simply =if(circ,desired calc,0).

While building the model, you can keep switch on 1 (for more complex models I would suggest keeping switch at 0 for ease of auditing). To fix a #REF error from circularity, just flip switch from 1 to 0 and back to 1. Happy modeling.

 

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