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Stocks II: The WACC model

There is little question that the discounted cash flow (DCF) model is the technically-correct method to assess the value of a company. As discussed in the previous chapter, there is no reason to pay more, or demand less, than the present value of the cash flows expected to be delivered by the company. And as we also discussed, this model has variations that depend on the way cash flows are defined and the rate used to discount them. In this chapter we’ll discuss the weighted-average cost of capital (WACC) model, arguably the most widely-used version of the DCF model. ...

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