>> X% discount to present value. If 1999 is 1.5 years away and the value then is suposed to be $45; then the "discounted" present value (pv) would result by applying the factor (1-0.3)_raised_to_the_1.5-th power. To make it simpler say $45 is exactly 2 years from today,then pv would be 45 times 0.7 times 0.7 or about $20 or so.<<
Ok, I follow the $45 number, although I find problematic the assumptions that led to that figure. Maybe they will earn that much and of course, maybe they won't. What I don't understand (math was never my strong point, except for simple addition, multiplication, etc) is where you get the factor (1- .3). Where do you get the .3 from? Perhaps you could email me, if the thread is not an appropriate place to explain.
Now, even once I understand how to value a company by this method, it seems pretty flawed to me. I would agree that by the time GENZL is making $1.50 share, perhaps it will be worth $45. But when some are saying it will only break even in 98 and with all the unknowns involved--final FDA approval, rate of insurance coverage, adoption of procedure, etc., I think that to say the current value is 20-25 is pretty questionable. I mean you are already making a number of extrapolations (based on a number of unknowns) to arrive at a price 2 years in the future. Then you give it a present value based on its projected future value.
Of course I know that you are not advocating this, but just being a nice guy and trying to help me understand. And that development bios are valued according to future prospects. Maybe this is the best system there is?
Also is there an easy way to calculate x (.7 in this case) to the 1.5 (or any fractional) power? Or do you need a special function on your calculator? Thanks for the math lesson! |
