Calculating Cash Flow ( Dcf ) Model Essay
In order to value Graincorp’s stock, this report used two-stage discounted cash flow (DCF) model. This model is chosen considering that Graincorp is in the mature stage, with the characteristics of paying high dividends and has a high leverage. Moreover, management stated that they are building another silos by this year, so it is assumed that Graincorp will have an increasing growth for several periods and will drop to the stable growth afterwards. Hence, the first stage of this model would be the increasing phase for 5 years and then followed by the stable growth phase.
5.2. Valuation Input
Weighted Average Cost of Capital (WACC) would serve as one of the valuation input for this two-stage DCF model. WACC itself explain the average rate of payment that the company is expected to paid to its capital providers to finance its assets. The calculation of WACC for Graincorp is explained in the table below. Beta used in this WACC calculation is derived from Industry Beta provided by Damodaran for Farming/ Agriculture industry. This beta would be adjusted for the leveraging effect. This beta used is the result from comparison of Industry Beta to Statistical Beta that is done by regressing Graincorp’s to ASX 200’s 5 years weekly return that produced beta of 0.61. However, it is statistically too weak with the R2 of 0.08.
2 Discounting Graincorp’s current and non-current debt face value based on the data on the annual report in 2014.
3 Number of outstanding…