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Author: StevnFool Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 1933  
Subject: DCF Analysis Date: 12/7/2004 12:46 PM
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Hi,

I know some people here use DCF analysis. I tend to be wary of the DCF analysis. I have three hypothetical companies for which I have valuations. I would like people to value 1 share of each company using their variation of DCF analysis. What I am looking for is intrinsic value, not bargain value or anything else. I want you to take all the numbers at face value - i.e. no need to adjust real earnings to owners earnings or anything. In a few days, I will advise what I believe 1 share of each company is worth and I will provide my rationale.

In all cases, please use a 10% discount rate for calculation.

In year 1, all three companies are expected to earn $1 per share.

Company A pays no dividend, but each year EPS will increase by 10% - i.e. Year 2 EPS will be $1.10. Year 3 EPS will be $1.21. It is expected that this rate of EPS growth will continue forever.

Company B pays out 50% of its earnings as a dividend, but each year EPS will increase by 5% - i.e. Year 2 EPS will be $1.05. Year 3 EPS will be $1.1025. It is expected that this rate of EPS growth and dividend payout ratio will continue forever.

Company C pays out all of its earnings as a dividend, but it is expected that its EPS and dividend will remain at $1 forever.

Lets see your valuations.

StevnFool
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