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  • Discount Rate: Intrinsic Value Example

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    GolamMostafa
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    This document provides an example calculation of intrinsic value using two discount rates - a 10% certain rate and a 3.5% risk-adjusted rate that applies a 70% certainty adjustment factor to discounted cash flows. For the 10% certain rate, the undiscounted and discounted cash flows are the same, resulting in an intrinsic value of $61,446. For the 3.5% risk-adjusted rate, the certainty adjustment is applied to discounted cash flows, resulting in a lower intrinsic value of $58,389.

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    Certainity Adjusted NPV

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    This document provides an example calculation of intrinsic value using two discount rates - a 10% certain rate and a 3.5% risk-adjusted rate that applies a 70% certainty adjustment factor to discounted cash flows. For the 10% certain rate, the undiscounted and discounted cash flows are the same, resulting in an intrinsic value of $61,446. For the 3.5% risk-adjusted rate, the certainty adjustment is applied to discounted cash flows, resulting in a lower intrinsic value of $58,389.

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    5 views2 pages

    Discount Rate: Intrinsic Value Example

    Uploaded by

    GolamMostafa
    This document provides an example calculation of intrinsic value using two discount rates - a 10% certain rate and a 3.5% risk-adjusted rate that applies a 70% certainty adjustment factor to discounted cash flows. For the 10% certain rate, the undiscounted and discounted cash flows are the same, resulting in an intrinsic value of $61,446. For the 3.5% risk-adjusted rate, the certainty adjustment is applied to discounted cash flows, resulting in a lower intrinsic value of $58,389.

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    © All Rights Reserved
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    of 2

    Intrinsic Value Example

    Discount Rate 10.0%

    Year 1 2 3 4 5 6

    Certainity Adjustment Facto na na na na na na

    Undiscounted Cash Flow 10,000 10,000 10,000 10,000 10,000 10,000

    Certainty Adjusted Cash Flo 10,000 10,000 10,000 10,000 10,000 10,000

    Intrinsic Value 61,446

    Risk Adj. Discount Rate 3.5%

    Year 1 2 3 4 5 6

    Certainity Adjustment Facto 70% 70% 70% 70% 70% 70%

    Undiscounted Cash Flow 10,000 10,000 10,000 10,000 10,000 10,000

    Certainty Adjusted Cash Flo 7,021 7,021 7,021 7,021 7,021 7,021

    Intrinsic Value 58,389


    7 8 9 10

    na na na na

    10,000 10,000 10,000 10,000

    10,000 10,000 10,000 10,000

    7 8 9 10

    70% 70% 70% 70%

    10,000 10,000 10,000 10,000

    7,021 7,021 7,021 7,021

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