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Discounted Cash Flow Example - Jimba Jomba Jumba Juice - Present Value
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YearCash FlowsPresent Value MultiplierPresent Value of Cash FlowComments $ 56.00 Current Market Price
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2022 $ 1.80 0.909 $ 1.636 $1.80 dividend10.00% Required Rate of Return
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2023 $ 2.00 0.826 $ 1.653 $2.00 dividend
We expect to receive cash flows in
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2024 $ 77.25 0.751 $ 58.039
$2.25 dividend + $75 estimated proceeds from sale of stock
the form of dividends and stock price.
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Total: $ 61.328 Present value of stock =SUM(discounted-cash-flows)
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Yes! It is a potenially good value. We
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calculated the present value to be
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Present Value Multiplier = 1 / (1+Rate)Time
$61.33 and the current market price
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is only $56. The model is telling us
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that we can buy $61.33 of value for
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only $56. But remember that this is
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just our forecast. It is not a guarantee!
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We are simply tilting the odds in our
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favor that we will identify prudent,
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long-term oriented companies.
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