Aswath Damodaran – Session 26 (Undergraduate): Dividend Closing & Valuation Opening

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Published on May 2, 2016

In today's class, we put the closing touched on dividend policy analysis by going through the possess of estimating FCFE, the cash flow left over after capital expenditures, working capital needs and debt payments. My suggestion is that you estimate the aggregate FCFE over 5 years (or as many years as you have data) and compare it to the cash returned. If the cash returned = FCFE, you have a rare company that pays out what it can afford in dividends. We then moved on to lay the foundations of valuation and ended the class by talking about the distinction between valuing equity and valuing an entire business. Finally, the post class test and solution are attached.
Post class test:
Post class test solution: