Key takeaway: A company is worth the sum of its discounted cash flows from now into eternity; you discount those cash flows at a rate appropriate for the company’s size, industry, and business risk.
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What is the formula for company value?
Why is money worth more today than it is next year?
If there were no inflation, would money today still be worth more than money next year?
Your friend has a new real estate investment idea. He pitches it to you and claims it will generate 10% interest per year. Should you invest in it?
What does the “Discount Rate” mean?
Why is the Discount Rate higher for stock-market investments than it is for debt investments, such as government bonds?
What is WACC?
You estimate that a company’s WACC is 10%. What does that mean?
How much would you pay for a company that generates $100 of cash flow every single year into eternity?
A company generates $200 of cash flow today, and its cash flow is expected to grow at 4% per year for the long term. You could earn 10% per year by investing in other, similar companies. How much would you pay for this company?
What might cause a company’s Present Value (PV) to increase?
Generally, how do you decide whether or not to invest in a company or asset?
What does the internal rate of return (IRR) mean?
What is “PV” (Present Value)?
What is “NPV” (Net Present Value)?
Does your discount rate impact your IRR?