Most DCF models are 10 years. This is the amount of time measured in years that you believe a company can maintain an excess return spread. The terminal value, or the terminal period, calculates the free cash flows from year 11 into perpetuity.
Grab your notebook and get ready to dive deep.
Motley Fool Senior Analyst John Rotonti discusses how investors can value a company using the discounted cash flow model. This method is the fundamental way to determine if you’re getting a bargain or paying too much when you buy any stock.
Rotonti discusses: - How to pick a discount rate for investments. - The key difference between fair and intrinsic value. - How to project free cash flows.
Have an investing question for John? Call 703-254-1445, leave a voicemail, and he may answer your question in an upcoming episode.
Additional resource: https://www.fool.com/investing/2022/01/19/expectations-investing-qanda-mauboussin-rappaport/
Stocks discussed: IBM, NEE, PEP
Host: John Rotonti Producer: Ricky Mulvey Engineer: Rick Engdahl
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