How can the intrinsic valutation change in the DCF analysis depending on the WACC method

Expert Solution

Intrinsic value of a share can change in the discounted cash flow analysis depending upon weighted average cost of capital method as weighted average cost of capital can be highly fluctuating in nature and it is always readjusted according to various kinds of risk elements which are present, and which could be e embedded with market risk or unsystematic risk.

Systematic risk associated with the company is always fluctuating in nature and weighted average cost of capital should always be risk adjusted in order to assign the weights of various kinds of risks that a firm is going to face in a future in order to discount the future cash flows, which are projected and ascertainment of a value at the present in order to derive the actual intrinsic value of this share.

This intrinsic value of the share is then, compared with the market price of this share in order to find out the under valuation or over valuation of shares so that the differential could be capitalised by investors who are looking for value investments.

jeff jeffy answered 1 year ago

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How can the intrinsic valutation change in the DCF analysis depending on the WACC method

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