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Technology Stocks : Cisco Systems, Inc. (CSCO)

CSCO 76.28

+0.1%

3:59 PM EST

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To: RetiredNow who wrote (62732)	1/21/2003 2:14:22 PM
From: bofp	Read Replies (1) of 77400

The right way to do this is to model the sharecount increases along with the cash flows then add the additional paid-in capital and the tax shield value of the option strikes. Divide each years cash flows by that year's share count, then discount back each year's free cash flow per share to the present day. Summing the present value of a single share should give you DCF value. Of course this valuation method is very sensative to the assumption that only the diluted shares in a particular period have claim to the FCF generated in the same period. IF the company accumulates the cash instead of paying a dividend or buying back shares, then the options that vest in future years will also have claim on those assets. Essentially, this means that the appropriate diluted share count in any given period is actually the number of shares that are anticipated to participate in the distribution of excess cash once it occurs. Since Cisco chooses to hoard cash and only periodically buy back shares, this cost is heavy indeed.

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