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Pastimes : Bad investing information/advice on the net contest
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To: The Other Analyst who wrote (177)12/17/1999 2:51:00 PM
From: Chuzzlewit  Read Replies (1) of 214
 
TOA,

I was reminded last week that I never responded to you. Sorry for the oversight.

If you insist on establishing a terminal value (a very dicey proposition in my opinion because it assumes unseeable fundamentals), at least use a multiple of free cash flow. One back of the envelope method that I use is to forecast the growth of FCF (excluding interest on cash on hand) plus the growth of excess cash through interest through the assumed period of hypergrowth. Then apply a multiple of the forecasted FCF assuming that the company is mature and add the accumulated excess cash. Discount the future value using the sume of the risk-free interest rate plus an appropriate risk premium. This approach involves a lot of hand waving, but at least it makes sense on theoretical grounds.

TTFN,
CTC
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