Analysis of Terminal Value and Beta Factor in the Discounted Cash Flow Method

Table of Contents

• Abstract (English)
• Abstract (Italiano)
• I. Index
• II. List of Tables
• III. List of Figures
• IV. List of Abbreviations
• 1. Introduction
  • 1.1 Problem Definition
  • 1.2 Objective and Organization of the Thesis
• 2. Discounted Cash Flow Method
  • 2.1 Growth Pattern
  • 2.2 Cash Flow Projection
  • 2.3 Discount Rate
• 3. Beta Factor
  • 3.1 Level of Beta Factor and its Economic Significance
  • 3.2 Estimation of Beta Factor from Historical Returns
    • 3.2.1 Regression Analysis
    • 3.2.2 Practical Problems
    • 3.2.3 Adjusted Beta
  • 3.3 Alternative Methods of Estimation Beta Factor
    • 3.3.1 Accounting Beta
    • 3.3.2 Bottom-up Beta
    • 3.3.3 Time-varying Beta
• 4. Terminal Value

Objectives and Key Themes

This thesis aims to examine the beta factor and terminal value as critical input factors in the Discounted Cash Flow (DCF) model for company valuation. It provides a comprehensive analysis of different estimation methods for both parameters and critically reviews their strengths and limitations. To illustrate the valuation procedure and analyze the impact of beta factor and terminal value on the intrinsic value, a case study of Microsoft Corporation is conducted.

• Analysis of the DCF model and its dependence on beta factor and terminal value
• Critical review of different estimation methods for beta factor and terminal value
• Impact of beta factor and terminal value on intrinsic value based on a case study of Microsoft Corporation
• Sensitivity of the intrinsic value to the input factors of the DCF model
• Importance of critical examination and further investigation of beta factor and terminal value in DCF model applications

Chapter Summaries

The thesis begins with an introduction that defines the problem and outlines the objectives and organization of the work. Chapter 2 introduces the Discounted Cash Flow (DCF) method, outlining its two stages, cash flow projection, and the determination of the discount rate. Chapter 3 focuses on the beta factor, exploring its economic significance, methods for estimation from historical returns, and alternative methods like accounting beta, bottom-up beta, and time-varying beta. Finally, Chapter 4 examines the concept of terminal value and its different estimation approaches. The thesis concludes with a discussion of the findings and their implications for financial analysts who use the DCF model.

Keywords

The main keywords and focus topics of this thesis include company valuation, Discounted Cash Flow (DCF) model, intrinsic value, beta factor, terminal value, estimation methods, sensitivity analysis, and case study of Microsoft Corporation. The work delves into the complexities of these concepts and their importance for accurate financial analysis, emphasizing the need for critical examination and further research.