The module on DCF does not appear to touch on the concept of terminal value. Does anyone know why? Is it because we are assuming that the company would exist for the next 10 years and may not exist thereafter, so we would pay only for the next 10 years of cashflow or earnings?
If you would take the terminal value into the calculation, how would you calculate it? Do you simply multiply the cashflow or earning of the last year (e.g., year 5) by, for example, 10?
In addition, for the discount rate, can we use Weighted Average Cost of Capital, WACC, instead of the 10 year treasury rate?
As mentioned by JR, DCF model is very subjective to the person using it. Forecasting the future earning is very hard as business are dynamics. Yup, you can go ahead to use WACC just that when using DCF you have to be super conservative.
To be honest. after 11 years of investing, i found DCF to be highly inaccurate and I have more missed than hit. If you have been to the workshop, I will teach only the PE, PB, PCFO for valuation because they are serve us well and we have more hit than missed.
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