Develop an estimated share price Business & Marketing Research Paper

Develop an Estimated Share Price
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Shareholder value enhancement in an organization often requires an environment that is conducive to long-term shareholder value creation where there is also risk management and effective use of debt. There are different shareholder value enhancement strategies, but one of the first thing is understanding how to measure value, where discounted cash flow (DCF) analysis, which is based on the time value of money (TVM) is the most preferred approach (Johnson, 2007). This requires first determining the projected earnings before interest and taxes (EBIT) and then adjusting for income taxes, depreciation, amortization, capital expenditures and the working capital to get the discretionary cash flow (Johnson, 2007). The cash flow is then discounted to get the present value of the future cash flow. Discounting depends on the discount rate that reflects the cost of capital or financing when considering the debt and equity.
Discounting the cash flows in the preset year and future years is necessary to make meaningful value. Determining the cash flows and then adding the present value of the terminal value helps to determine the enterprise value (Johnson, 2007). After determining the enterprise value, there is deduction of the outstanding debt and then there are other adjustments to get the equity value (Johnson, 2007). Since the discounted cash flow analysis is based on a period forecasting, and the terminal value captures the value the company at the end of the period.
The DCF method as applied to valuation is based on generating wealth in the future and the value represents a reasonable price. Thus, the valuation needs to consider the after-tax income, level of risk affecting the rates of return used in forecasting the cash flows, asset management as well as the use of debt financing (Johnson, 2007). For the shareholder valuation method based on the discounting cash flows the value creation is closely linked with the revenues and cost of capital.
The after-tax income variable affects shareholder value and depends on the operating activities, since these activities affect the growth potential. Increases in the revenues tend to increase income so long as the expenses do not increase at a higher rate and higher revenues in turn drive business value. Thus, when valuing the shareholder values the increase in revenue and...