F1
Model Reconciliation
Put every model for the case on one football field. Models that share the same forecast and return should agree, so each gap points to a real difference in assumptions.
Learning focus: Different models don't give different answers by nature: they differ when they assume different things, and finding that difference is the analysis.
Case file
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FCFE value
$47.33
Consistent models agree
Yes
Required return
8.00%
Terminal growth
3.50%
Scenario
Base
Price
$44.50
value is 6.4% from price
Football field
Bars run from the lowest to the highest scenario, each with its own terminal growth. The dot is the scenario you chose, with your assumptions.
Why the models differ
| Model | Value | Gap | Cause |
|---|---|---|---|
| FCFE | $47.33 | 0.00 | The starting point: what the forecast could pay shareholders, at the required return. |
| Dividend model, all FCFE paid out | $47.33 | 0.00 | Matches FCFE, because the forecast pays out everything it could. |
| Residual income | $47.33 | 0.00 | Matches, because clean surplus holds: value only moves earlier, into book value. |
| FCFF, WACC year by year | $47.33 | 0.00 | Matches, because each year's WACC follows that year's mix of debt and equity. |
| FCFF, one constant WACC | $47.87 | 0.54 | One WACC of 7.29% uses market weights at today's price, so the gap comes from the price differing from value and from leverage changing over time. |
| Gordon on the actual dividend | $47.15 | −0.18 | Uses the $2.05 dividend in place of the forecast's $2.10 of payout in its first year, and one growth rate from the start. |