Estimating Terminal Value – http://people.stern.nyu.edu/adamodar/pdfiles/eqnotes/dcfstabl.pdf Analysts normally must calculate a terminal value of a firm when preparing a discounted cash flow valuation. There are three ways to prepare this estimate, which include (1) assuming a liquidation value of the firm’s assets in the terminal year, (2) applying a multiple to earnings, revenues or book value, and (3) assuming the free cash flows will grow at a constant rate forever (a stable growth rate). Using each of these methods, what is your estimate of the terminal value for Cathay General Bancorp?

Question description

1. Estimating Growth – http://people.stern.nyu.edu/adamodar/pdfiles/eqnotes/dcfgrowth.pdf

There are three ways to estimate growth rates for earnings, revenues, and dividends. These include (1) the growth rate of the firm’s past (operating) earnings, (2) obtain the information from analysts, and (3) estimate the rates from the firm’s fundamentals. Using each of these methods, what is your estimate of the growth rate for Cathay General Bancorp?

2. Estimating Terminal Value – http://people.stern.nyu.edu/adamodar/pdfiles/eqnotes/dcfstabl.pdf

Analysts normally must calculate a terminal value of a firm when preparing a discounted cash flow valuation. There are three ways to prepare this estimate, which include (1) assuming a liquidation value of the firm’s assets in the terminal year, (2) applying a multiple to earnings, revenues or book value, and (3) assuming the free cash flows will grow at a constant rate forever (a stable growth rate). Using each of these methods, what is your estimate of the terminal value for Cathay General Bancorp?

3. Most Important Things Learned –

What are the most important things you learned from the study of this assignments?

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