Home FED+ Basics
Future Earnings Discounted Plus Equity Model PDF Print E-mail
Written by Dr. Econ   
Wednesday, 13 July 2011 00:00

There are many different ways to estimate the fair value of a company. I look at it from a financial engineering perspective. Let’s say there is a project. You invest your capital in the project. You expect the project to make a minimum return for your investment. At the same time, you need to know what the downside of the project is. In the worst case, you will lose your money up to the equity value. Thus, the companies already have this equity in them. By purchasing a stock, you pay for the rest.

The companies make profit. They are supposed to make profits. If they do not, make sure to stay away from the company. As a shareholder, you are the owner and at least theoretically you are entitled to receive the profits. I would rather prefer it in my pocket in form of a dividend check, but still it is in the company’s account which I am entitled a portion of. The profits continue growing in the long term. However, analysts have almost no idea about what will be the profit growth after 5 years. Therefore 5 years is a good cut-off point for the profits. The company still keeps making profits, but we assume the profits to stay constant.

Based on the above logic FED+ Fair Value is calculated as the following:

Fair Value = E0 + E1 / (1+r) + E2 /(1+r)2 + E3/(1+r)3 + E4/(1+r)4 + E5/(1+r)5 + Disposal Value

Fair Value = E0 + E0 (1+g)/(1+r) + E0(1+g)2/(1+r)2 + … + E0(1+g)5/(1+r)5 + E0(1+g)5/[r(1+r)5]

The earnings after the last period act as a perpetuity that creates regular earnings:

Disposal Value = D = E0 (1+g)5/[r(1+r)5] = E5 / r

Fair Value = E0 + E0 (1+g)/(1+r) + E0(1+g)2/(1+r)2 + … + E0(1+g)5/(1+r)5 + E5 / r

FileDescriptionUploaderFile sizeLast modified
Download this file (FairValueFinalWeb.xlsx)FED+ Fair Value EstimatorDownload Excel FileDr. Econ14 Kb22/08/11 22:29
Last Updated on Thursday, 06 October 2011 06:51


0 #83 Kassandra 2015-11-26 04:45
You really make it seem really easy together with your presentation however I
to find this topic to be actually one thing that I think
I might by no means understand. It kind of feels too complex and extremely broad for me.
I'm looking forward on your subsequent publish, I will attempt to get the dangle of it!

Feel free to surf to my homepage bielizna damska: http://www.sgl-w.pl/
0 #82 Marguerite 2015-10-30 07:40
Yet, never before, were there countless experts or products offered to assist us to reduce weight.
By eliminating Gluten from my diet, we give our
intestines the opportunity to get over damages Gluten previously caused.
Chubby cheeks, dark under eye circles and double chins is most likely the
consequence of lack of exercise instead of eating an adequately balanced diet.

Here is my weblog - weight loss after pregnancy before and after: http://en.wikipedia.org/wiki/Weight_loss
0 #81 Vicky 2015-09-29 16:22
Nice weblog here! Also your site rather a lot
up fast! What web host are you using? Can I am getting your affiliate hyperlink in your
host? I desire my site loaded up as quickly as yours

Also visit my site: We-Vibe 4 caceres: http://lolatoys.com/es/we-vibe-4-plus.html
0 #80 Andra 2015-09-29 09:19
Hi there, You have done a fantastic job.
I will definitely digg it and personally recommend to my friends.
I'm confident they'll be benefited from this web site.

my webpage; lolatoys: http://lolatoys.com/es/we-vibe-4-plus.html
0 #79 Alanna 2015-09-29 08:51
If some one desires expert view regarding blogging and site-building afterward i propose him/her to pay a visit this website, Keep up
the pleasant job.

Also visit my blog post; el mejor vibrador: http://lolatoys.com/es/gigi-2.html
0 #78 Katherina 2015-09-29 05:41
Hey there! I've been following your site for a while now and finally got the bravery to go ahead and give you a shout out from Porter Texas!
Just wanted to mention keep up the good work!

Here is my page - vibradores lelo: http://lolatoys.com/es/liv-2.html
0 #77 Royce 2015-09-29 02:51
We're a gaggle of volunteers and starting a brand new scheme in our community.
Your site provided us with useful information to work on. You have
performed an impressive job and our whole group
can be thankful to you.

my blog; We-Vibe 4 amazon: http://lolatoys.com/es/we-vibe-4-plus.html
0 #76 Therese 2015-09-29 02:01
I've read some good stuff here. Definitely value bookmarking for revisiting.
I wonder how so much attempt you place to create the sort
of great informative website.

Also visit my web site; vibradores lelo: http://lolatoys.com/es/gigi-2.html
0 #75 Eulah 2015-09-29 00:30
I am not positive the place you're getting your information,
however great topic. I must spend some time finding out more
or working out more. Thanks for excellent information I
was in search of this info for my mission.

Here is my website ... vibrador: http://lolatoys.com/es/vibradores.html
0 #74 Clemmie 2015-09-28 23:24
These are really fantastic ideas in about blogging.
You have touched some fastidious points here.
Any way keep up wrinting.

Feel free to visit my weblog; vibrador lelo: http://lolatoys.com/es/vibradores.html

Add comment

Comments are greatly appreciated.

Security code

. .