It is highly unlikely that any company’s implied value under the discounted cashflow methodology would increase by its cost of capital, in this case 19%. The only way this could occur is if:
- 19% of the total value of the Company under the discounted cashflow methodology resulted from cashflows in 2005;
- The 2005 cashflows truly were converted into cash, retained by the company as excess cash and not needed or used for any aspect of the business;
- a new forecast is provided that is an exact duplicate of the previous multi-year forecast; and
- all other factors remain constant.
In a changing world, little, including a financial forecast, remains constant from year to year and rarely is almost 20% of the value of a growing company ascribed to the first year of forecasted cashflow results.
