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Compounding Growth Strategy and Intrinsic Value Calculation
Using a 20% compounded growth rate example, if a company successfully reinvests all earnings into acquisitions over 10 years, their free cash flows could increase substantially. By applying a 25 multiple to the future cash flows discounted at a 10% rate, the intrinsic value of the company can be calculated. Comparing this intrinsic value to the current market value can indicate potential investment opportunities, with a 54% discount in this specific scenario.