What should you do with the implied values after summing the present value of terminal value and free cash flows?

What should you do with the implied values after summing the present value of terminal value and free cash flows?

• A. Calculate a net present value adjustment
• B. Convert it into enterprise value
• C. Derive the implied share price from equity value
• D. Analyze valuation multiples

Answer: (C)

After summing the present value of the terminal value and the free cash flows, the appropriate step is to derive the implied share price from equity value. This process involves first calculating the total enterprise value based on the discounted cash flows, then adjusting for debt, cash, and any other relevant items to arrive at the equity value. Once the equity value is determined, it can be divided by the number of shares outstanding to find the implied share price. This step is crucial for investors and analysts as it allows them to compare the calculated share price to the current market price, helping them assess whether the stock is overvalued or undervalued. The other choices, such as calculating a net present value adjustment or converting it into enterprise value, do not directly lead to finding the share price after the valuation has been conducted. While analyzing valuation multiples is informative, it does not provide the direct calculation of the share price based on the derived equity value.

After summing the present value of the terminal value and the free cash flows, the appropriate step is to derive the implied share price from equity value. This process involves first calculating the total enterprise value based on the discounted cash flows, then adjusting for debt, cash, and any other relevant items to arrive at the equity value.

Once the equity value is determined, it can be divided by the number of shares outstanding to find the implied share price. This step is crucial for investors and analysts as it allows them to compare the calculated share price to the current market price, helping them assess whether the stock is overvalued or undervalued.

The other choices, such as calculating a net present value adjustment or converting it into enterprise value, do not directly lead to finding the share price after the valuation has been conducted. While analyzing valuation multiples is informative, it does not provide the direct calculation of the share price based on the derived equity value.