Posted by nicholas1969 > 2014-07-07 16:00 | Report Abuse

Hi Intelligent Investor, Since I am new to this DCF calculation, I have 2 doubtful question on the growth rate and discount rate used in the Pintaras calculation.
In the FCF Calculation you have used 5% discount rate in the first year and increase it to 14% in the 10th year.How do you determined 5% and why do you increased 1% every year?
And for the growth rate, why do you choose 12% growth rate instaed of 20.96%? Appreciate for your expertise expalnation.tq

Posted by nicholas1969 > 2014-07-08 21:08 | Report Abuse

Anyone can help to explain above?

Posted by Intelligent Investor > 2014-07-08 22:49 | Report Abuse

Hi nicholas1969,

I am using different discount rate to discount the whole cash flow but not 5% for 1st year and 14% for 10th year. This can show us what will be the intrinsic value based on different discount rate.

I am using a lower growth rate to give me a better margin of safety.

Posted by nicholas1969 > 2014-07-10 13:19 | Report Abuse

What is your normal practice in order to set the discount rate in your calculation?
On the growth rate, are you used the rate calculated based on your FCF growth rate?

Posted by Intelligent Investor > 2014-07-10 13:49 | Report Abuse

Hi nicholas1969,

We need to review a company's quality and decide the discount rate. For growth rate, I will use the historical data and read some of the forecast report as a reference. And, I will determine the growth rate based on my own judgement with these inputs. But, most of the time I will play safe and use a lower growth rate in order to protect my capital.

Posted by Intelligent Investor > 2014-07-10 13:50 | Report Abuse

You can refer http://intelligentinvestor8.blogspot.com/2014/05/discounted-cash-flow-analysis-reverse.html for my notes on DCF.