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Strategies & Market Trends : Free Cash Flow as Value Criterion -- Ignore unavailable to you. Want to Upgrade?

To: Andrew who wrote (105)	11/3/1997 3:12:00 PM
From: Pirah Naman	Respond to of 253

Andrew: My one comment is that by disregarding the FCFs after some period of time (as you put it, avoiding the optimistic assumption that Intel will be around forever) you are implicitly assuming a residual value of zero, which is incorrect. The alternative is to include the residual value. You can take a pessimistic view of 0% growth, or some other low number, but what this does is to put you back into the situation that

To: Andrew who wrote (105)	11/3/1997 3:41:00 PM
From: Pirah Naman	Read Replies (1) \| Respond to of 253

Andrew: My one comment is that by disregarding the FCFs after some period of time (as you put it, avoiding the optimistic assumption that Intel will be around forever) you are implicitly assuming a residual value of zero, which is incorrect. The alternative is to include the residual value. You can take a pessimistic view of 0% growth, or some other low number, but what this does is to put you back into the situation that almost anything can be made to look good. Using your most optimistic scenario I cranked out that Intel is worth about 29 times this years FCF. Adding in the most pessimistic residual value to that gives us another 14.5, for a total of 43.5 x this years FCF. This method is a good test for making sure you are getting an OK price for a great company, but this is why I prefer to test over the shorter period. Pirah