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The value of any asset is equal to the present value of all future cash flow is the concept being relied on when valuing a firm using the DCF valuation method. Does the interest rate factor in your model? If so, how does the interest rate factor in your model? There are at least two ways the interest rates are accounted for in a DCF valuation model.
We discuss the different ways interest rates can factor into your DCF valuation model on this page.
We need the values of debt and equity to estimate the cost of capital and WACC. The book values of debt and equity are easier to obtain. But note that we ideally want the market values of debt and equity and not the book values of debt and equity. Why?
What are the drawbacks of using book values in computing the weights of capital?
Risk is a given in any investment. It is incorporated into valuation in the cost of equity and debt which flows into the discount rate. International projects are considered higher risk given the potential for political and/or currency fluctuations. Therefore a risk premium is added for international projects.
We look at the question: “Are country risk premiums a one time task or does it need to be revised frequently?” on this page.
There are different methods of estimating the cost of equity do you use. You must know more than one and why you are picking the one you use.
We address this question: Which method of estimating the cost of equity do you use? Why?