Good points, Madharry.
1) My view is that if I were to go do an Net Present Value calculation on discounted cash flows, that anything beyond 10 years or so doesn't mean too much. So, I tend to use a 5-year growth projection hoping that will be long enough to be material in the calculation.
2) Regarding a tail-off in growth, I think you'd have to just choose an eps estimate and then from that estimate, project a growth rate to get your end value. So, it's your projection that means a lot to the calc, and that projection can be hard to make, I agree. But, I think future growth rate has to go into any value estimate, so whether we use this formula or not it's still tricky.
3) For these companies, since I'm adding in cash at the end, I think I'd have to pull out the cash I add at the end if I thought it were to decrease to get the projected growth rate.
4) If options were material, they'd have to factor in somehow. I will admit to not paying enough attention to options in any of my investments no material what formula I'm using. :)
Thanks,
cwillyg |
