Being Consistent
You tell me how you estimate cash flows, and consistently, you should know which discount rate to use.
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Valuing the Equity in the business is different from valuing the entire business
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Example:
Let’s say you buy a house in New York, the value of the house in the market is 2 Million and you bought it using a 1.6 million dollar debt + some of your own cash.
How much is the House worth at that point? - $2 Million
How much is your equity worth? - $2 Million - $1.6 Million = $400,000
$$ Equity\>=Total \>assets - Total\> Liabilities $$
Let’s say, 6 months down the line, housing prices are down $400,000,
How much is the House worth now? - $1.6 Million
How much is your equity worth? - $1.6 Million - $1.6 Million = $0 (your debt is still the same, the loan of $1.6 Million)
<aside> đŸ’¡ Therefore, you can have valuable businesses where equity is worth nothing.
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