13

ebit(1-tr)+dep - cap exp i ncrease in nwc

FCFF

fcff-int exp(1-tr) +increases in net debt

fcfe

if intrinsic value of the stock is equal to its price, then the market capitalization rate is equal to expected rate of return, if individual investor believe the stock is underpriced i.e. intrinsic value>price then the investor's expected rate of return is greater than the market cap rate

if a security is underpriced i.e. intrinsic vlaue>price then what is the relationship between its mark cap rate and expected rate of return

intrinsic value of a share is the individual investor's assessment of the true worth of the stock

intrinsic value

market capitalization rate

market consensus for required rate of return for the stock

dividend discount models can be used to value the stock of rapidly growing companies that do not currently pay dividends, valuing expected dividends i nthe distant future which may be inaccurate, free cash flow models are more appropriate, dividend model better to value a mature firm paying a relatively stable dividend

what circumstances would you choose to use a dividend discount model rather than a free cash flow model to value a firm

use multi stage models when valuing companies with temporarily high growth rates in early phases of life cycle, rapid growth and low dividends

when is it most important to use multistage dividend discount models rather than constant growth models