Central-bank Interest rates and Interbank rates in Europe or Fed funds rates in the U.S.

Central-bank interest rates

Reducing interest rates has also been shown to be a valuable tool to control economic growth.  

When a central bank decides that an economy is growing too slowly, it can simply reduce the interest rate it charges on loans of central bank funds to banks, referred to as the discount rate in the U.S.

When banks get this "cheaper" money, they are able to make cheaper loans to businesses and consumers, providing an important stimulus to economic growth.

Likewise, by raising interest rates, a central bank can slow down the economy by making it more "expensive" for businesses and consumers to borrow money, consequently reducing purchases of homes, cars, vacations, and factories.

Interbank rates (Europe) or Fed funds rates (U.S.)

The central-bank interest rates tend to change the interest rates throughout the economy at large.

The interest rates on loans made between banks - called interbank rates in Europe and Fed funds rates in the U.S. - 

• will rise whenever banks have to pay more to borrow from the central bank and 
• will fall when they have to pay less.

The higher cost of money is almost always passed on to consumers and businesses in the form of higher interest rates on every other form of loan in the economy.

The Choice of a Discount Rate

The other component of present-value analysis, choosing a discount rate, is rarely given sufficient consideration by investors.

• A discount rate is, in effect, the rate of interest that would make an investor indifferent between present and future dollars. 
• Investors with a strong preference for present over future consumption or with a preference for the certainty of the present to the uncertainty of the future would use a high rate for discounting their investments. 
• Other investors may be more willing to take a chance on forecasts holding true; they would apply a low discount rate, one that makes future cash flows nearly as valuable as today's. 
• There is no single correct discount rate for a set of future cash flows and no precise way to choose one. 

The appropriate discount rate for a particular investment depends not only on an investor's preference for present over future consumption but also on his or her own risk profile, on the perceived risk of the investment under consideration, and on the returns available from alternative investments.

• Investors tend to oversimplify; the way they choose a discount rate is a good example of this. 
• A great many investors routinely use 10 percent as an all-purpose discount rate regardless of the nature of the investment under consideration. 
• Ten percent is a nice round number, easy to remember and apply, but it is not always a good choice. 
• The underlying risk of an investment's future cash flows must be considered in choosing the appropriate discount rate for that investment. 
• A short-term, risk-free investment (if one exists) should be discounted at the yield available on short-term U.S. Treasury securities, which, as stated earlier, are considered a proxy for the risk-free interest rate.
• Low-grade bonds, by contrast, are discounted by the market at rates of 12 to 15 percent or more, reflecting investors' uncertainty that the contractual cash flows will be paid. 

It is essential that investors choose discount rates as conservatively as they forecast future cash flows.

• Depending on the timing and magnitude of the cash flows, even modest differences in the discount rate can have a considerable impact on the present-value calculation. 
• Business value is influenced by changes in discount rates and therefore by fluctuations in interest rates. 
• While it would be easier to determine the value of investments if interest rates and thus discount rates were constant, investors must accept the fact that they do fluctuate and take what action they can to minimize the effect of interest rate fluctuations on their portfolios. 

How can investors know the "correct" level of interest rates in choosing a discount rate?

• I believe there is no "correct" level of rates. 
• They are what the market says they are, and no one can predict where they are headed. 
• Mostly I give current, risk-free interest rates the benefit of the doubt and assume that they are correct. 
• Like many other financial-market phenomena there is some cyclicality to interest rate fluctuations. 
• High interest rates lead to changes in the economy that are precursors to lower interest rates and vice versa. 
• Knowing this does not help one make particularly accurate forecasts, however, for it is almost impossible to envision the economic cycle until after the fact. 

At Times when Interest Rates are Unusually Low

• At times when interest rates are unusually low, however, investors are likely to find very high multiples being applied to share prices. 
• Investors who pay these high multiples are dependent on interest rates remaining low, but no one can be certain that they will. 
• This means that when interest rates are unusually low, investors should be particularly reluctant to commit capital to long-term holdings unless outstanding opportunities become available, with a preference for either holding cash or investing in short-term holdings that quickly return cash for possible redeployment when available returns are more attractive. 

Investors can apply present-value analysis in one of two ways.

• They can calculate the present-value of a business and use it to place a value on its securities. 
• Alternatively, they can calculate the present-value of the cash flows that security holders will receive: interest and principal payments in the case of bondholders and dividends and estimated future share prices in the case of stockholders. 
• Calculating the present value of contractual interest and principal payments is the best way to value a bond. 
• Analysis of the underlying business can then help to establish the probability that those cash flows will be received. 

By contrast, analyzing the cash flows of the underlying business is the best way to value a stock.

• The only cash flows that investors typically receive from a stock are dividends. 
• The dividend-discount method of valuation, which calculates the present value of a projected stream of future dividend payments, is not a useful tool for valuing equities; for most stocks, dividends constitute only a small fraction of total corporate cash flow and must be projected at least several decades into the future to give a meaningful approximation of business value. 
• Accurately predicting that far ahead is an impossibility. 
• Once future cash flows are forecast conservatively and an appropriate discount rate is chosen, present value can be calculated. 

In theory, investors might assign different probabilities to numerous cash flow scenarios, then calculate the expected value of an investment, multiplying the probability of each scenario by its respective present value and then summing these numbers.

• In practice, given the extreme difficulty of assigning probabilities to numerous forecasts, investors make do with only a few likely scenarios. 
• They must then perform sensitivity analysis in which they evaluate the effect of different cash flow forecasts and different discount rates on present value. 
• If modest changes in assumptions cause a substantial change in net present value, investors would be prudent to exercise caution in employing this method of valuation.

The Federal Discount Rate, Repo and Federal Reserve Balance Sheet

Should investors worry about the possibility that business value may decline? Absolutely.

The possibility of sustained decreases in business value is a dagger at the heart of value investing (and is not a barrel of laughs for other investment approaches either). Value investors place great faith in the principle of assessing value and then buying at a discount. If value is subject to considerable erosion, then how large a discount is sufficient?

Should investors worry about the possibility that business value may decline? Absolutely. Should they do anything about it? There are three responses that might be effective.

• First, since investors cannot predict when values will rise or fall, valuation should always be performed conservatively, giving considerable weight to worst-case liquidation value as well as to other methods. 
• Second, investors fearing deflation could demand a greater than usual discount between price and underlying value in order to make new investments or to hold current positions. This means that normally selective investors would probably let even more pitches than usual go by. 
• Finally, the prospect of asset deflation places a heightened importance on the time frame of investments and on the presence of a catalyst for the realization of underlying value. In a deflationary environment, if you cannot tell whether or when you will realize underlying value, you may not want to get involved at all. If underlying value is realized in the near-term directly for the benefit of shareholders, however, the longer-term forces that could cause value to diminish become moot.

Ref:  Margin of Safety by Seth Klarman

Intrinsic Value Calculator and Spreadsheet Template

http://www.intrinsicvaluecalc.com/

Intrinsic Value Calculator  Value investors actively seek stocks of companies that they believe the market has  undervalued.  They believe the market overreacts to good and bad news, resulting  in stock price movements that do not correspond with the company's long-term  fundamentals. The result is an opportunity for value investors to profit by buying  when the price is deflated. (courtesy of Investopedia.com) Want to estimate the value of a stock? Try this top-rated Intrinsic Value Calculator! Simply enter your stock symbol and click "Submit" to get started. Read more about Value Investing

Enter Stock Symbol and click Submit Enter Stock Symbol  Terms of Use STEP 1:   Input values and click "Calculate Intrinsic Value" Input or Adjust values: Current EPS (TTM) : Where to find EPS(ttm)? Estimated Growth Rate to use: % Where to find growth rate? Future PE To use: View current PE  View historic PEs Current Price $: Where to find current quote? STEP 2:   Review Results Review Results Estimated Intrinsic Value Price: $ Estimated Margin of Safety Value Price: $ 5-Year Return on Investment Capital (ROIC): (A strong business will have a 5-Year ROIC of 10% or greater)    Review Technical Chart View Technical Chart for ; trade on momentum [MACD(17,8,9) and 10-day MA]  Other useful research links: View Key Statistics for  View Historic Equity Growth (Book Value / Share) for  View Historic EPS and Sales Growth for

How is the Estimated Intrinsic Value calculated?
The software determines an estimated growth rate based on the historic EPS and Equity growth rates. It then applies FV (future value) calculations to determine the expected EPS and stock price at some point in the future. It then reverses the calculation using a minimum acceptable rate of return (15%) to determine the intrinsic value in today’s dollars. The MOS price is half of that estimated intrinsic value price. Value investors
believe that risk can be minimized by only investing when the current price falls below the MOS price.




http://www.valuestockmoves.com/spreadsheetinfo.php

Click to Download this FREE!
Intrinsic Value Excel Spreadsheet Template

(or Right-Click and select 'Save-As')

Calculates the intrinsic value and MOS (margin of safety) for your stocks

Additional notes:

If you’re worried about earnings and earnings growth consistency and want to factor it in somehow, you may want to attenuate growth rates or bump up the discount rate to account for uncertainty.

The keep-it-simple-safe (KISS) approach used by most value investors, including Warren Buffett, is to discount at a relatively high rate, usually higher than the growth rate. 

Buffett uses 15 percent as a discount, or “hurdle” rate – investments must clear a 15 percent “hurdle” before clearing the bar.  The 15 percent hurdle incorporates a lot of risk, especially in today’s environment of relatively low interest rate and inflation. Conservative value investors usually use discount rates in the 10 to 15 percent range.

Value in the context of Your Overall Portfolio

A stock's value is the sum of its future cash flows, each discounted to today's value at the base return you're aiming to make.

But that doesn't mean you'd rush straight out and buy stocks at that value - if you did, you'd only expect to make whatever return you'd factored in, and you wouldn't be leaving yourself any margin for error.


Margin of safety

To be interested in the investment, we'd have wanted to see a discount to that fair value, and it's very much a case of the more the merrier.

The larger the discount to your estimate of expected value, 

• the greater the likely returns and 
• the less chance you have of losing money.

So how might the margin of safety work with a stock?

Let's say your expectation is for ABC Company to pay dividends in the current year of $1.20, and that you expect this to increase forever by 6% a year.

• To get a targeted return of 10%, you'd therefore need to pay a price that provided a dividend yield of 4% (so that the yield of 4% plus its growth of 6% would equal your targeted return of 10%), which comes out at $30 ($1.20 divided by 4%, or 0.04.)

Calculations:

$1.20/4% = $30.

Next year, dividend = $1.20 x 1.06 = $1.272
Share price = $1.272/4% = $31.80
Total return = Capital gain + Dividend = ($31.80- $30) + $1.20 = $3
Total return = $3/$30 = 10%.

But that is just your estimate of a fair value for the stock. To get you interested in buying it, you'd need to see a discount to this - and the riskier the situation and the better the opportunities elsewhere, the more of a discount you'd need.

• Balancing it all up, you decide you only really find ABC Company compelling at $20.
• That would give you a 33% margin of safety, but it would also increase your dividend yield to 6% and your total expected return to 12% (the 6% yield plus the 6% growth).

The intrinsic value of $30 is also the level you might reasonably expect the stock price to return to (or 6% higher than that for each year into the future to allow for the growth) - so it also defines the capital gain you're secretly hoping to make if the price returns to the underlying value. 

• The trouble is that you don't know when - or even if - the price will return to that underlying value.  
• But the bigger the margin of safety and the more confident you are about it, the better your chances of capital appreciation.  
• And if you're left holding the stock, a large margin of safety should at least make it a decent ride.

The price wobbles around, either side of the underlying value, and your aim is to buy when it's a good way below it.  

• The further the price gets from the value, in either direction, the more likely a snap-back becomes.  
• Riskier stocks are those that have a wide range of potential outcomes.  They will probably bounce more wildly, making the prospects of a snap-back less reliable, and you'll want to buy at a wider discount to provide some comfort.

Diversification

Even with a fat margin of safety, you wouldn't put too much just in single stock because of a remote and variable chance of a complete wipe-out.

With stocks, diversification comes from spreading your portfolio over a range of different companies and sectors, and from the amount of time you are invested. 

The more time you allow, the greater the chances of the value being reflected - which, of course, is why the sharemarket beats cash more consistently the longer you give it.



Interaction between diversification and margin of safety.

There's an interaction between diversification and margin of safety, because the more you've got of one, the less you might need of the other.

There is, however, a crucial difference:

• as you increase the number of stocks in your portfolio, your selections gradually get worse.  
• An increased margin of safety, on the other hand, will mean better selections.

The flip side is that margin of safety relies on you making correct assessments of value, while diversification will tend to take you towards an average return, whether you're getting the value right or wrong.  

• So if you're very confident in your ability to assess value, you might focus on finding stocks where you see a huge margin of safety and not worry so much if you end up holding only a few of them.  

• But if you're less sure about assessing value correctly, you'll want to focus more on achieving a decent diversification, with the inevitable reduction in apparent margin of safety from your additional selections.

Related:

• Value Investing is about Buying Stocks for less than they're worth
• Simple ways to value stocks and shares
• Value in the context of Your Overall Portfolio

Simple ways to value stocks and shares

The fundamental basis of value

Stocks and shares confer the right to receive money in the future, and it's this ability to put money in your pocket that gives them their value.  Specifically, the value of a stock is the value of each of those future bits of money all added together.

This is where things start to get a bit tricky, because the value of money you are going to receive in the future depends on three elements:

• how much it is
• when you actually receive it (time value of money) and 
• the return you plan to make in the meantime (internal rate of return or the discount rate).  

For illustration, you plan for your money to make 10% each year.  This is the internal rate of return or the discount rate, depending on which end of the sums you're coming from.  The key point is that a payment of $161.05 in five years' time would have a value today of $100 if you wanted it to deliver a return of 10% a year.

• If you paid more than that then you'd make less than 10%; 
• if you paid less, you'd make more than 10%; and
• if you paid a lot less, you'd make a lot more than 10%.  That's value investing.

When you get a payment that repeats every year, forever, something really handy happens:  the sum of all the individual payments simplifies down to just one payment divided by your discount rate.  

If the payments received are growing - at least if you assume they'll grow at the same rate each year:  you just divided the first payment by the difference between the discount rate and the growth rate (the growth rate effectively offsets part of the discount rate).


The return you plan to make.

For money you plan to commit to the share market, we'd recommend using the long-term return from shares as your discount rate (your "opportunity cost of capital").

• We think 10% is a nice round number to aim for. 
• As long as you choose something in the ballpark of 8 to 12%, though, most of any difference should get lost in the rounding.

Don't confuse value and risk.

Conventional theory says you should finetune your discount rate for different shares, using a higher discount rate for riskier stocks and vice versa, but we think that just confuses the issue.  If something is riskier than something else, it doesn't necessarily mean it has a lower value, it just means that the value is more variable.

How you deal with risk for any particular stock depends on your margin of safety, your diversification and how much risk you're prepared to take.  To understand how these factors all stack up, though, you need to put all stocks on a level playing field in the first place by valuing them on the same basis - which means using the same discount rate.


Related:

• Value Investing is about Buying Stocks for less than they're worth
• Simple ways to value stocks and shares
• Value in the context of Your Overall Portfolio

The longer you have to wait and the less certain you are that you'll eventually receive a set of cash flows, the less they are worth to you today.

Cyclicality

Is the firm in a cyclical industry (such as commodities or automobiles) or a stable industry (such as breakfast cereal or beer)? Because the cash flows of cyclical firms are much tougher to forecast than stable firms, their level of risk increases.

Valuation of Cash Flows from Stocks

Valuation of Cash Flows from Stocks

Stocks have value only because of the potential cash flows that investors receive. These cash flows can come from any distribution (such as dividends or capital gains realized on sale) that stockholders expect to receive from their share of ownership of the firm, and it is by forecasting and valuing these expected future cash flows that one can judge the investment value of shares.

The value of any asset is determined by the discounted value of all expected future cash flows.

Future cash flows from assets are DISCOUNTED because cash received in the future is not worth as much as cash received in the present. The reasons for discounting are:

1. the innate TIME PREFERENCES of most individuals to enjoy their consumption today rather than wait for tomorrow,

2. PRODUCTIVITY, which allows funds invested today to yield a higher return tomorrow, and

3. INFLATION, which reduces the future purchasing power of cash received in the future.

4. UNCERTAINTY associated with the magnitude of future cash flows.

These factors 1, 2, and 3 also apply to both stocks and bonds and are the foundation of the theory of interest rates. Factor 4 applies primarily to the cash flows from equities.

The fundamental sources of stock valuation are the dividends and earnings of firms.

Discount Rate Determinations: Summary

Discount Rate Determinations

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VALUE INVESTING
Baseline: Long-term U.S. Treasuries
Additional: Risk assessment (conscious judgment)


PORTFOLIO INVESTING
Baseline: Long-term U.S. Treasuries
Additional: Market risk premium X beta (seemingly scientific)

-------------------------------------------------------------------------------

Value investing and portfolio theory determine discount rates by adding an amount to the risk-free rate ascertained from long-term U.S. Treasury securities.

Portfolio theory uses the product of the market risk premium and the target’s beta.

Value investing questions the seemingly scientific quality of this exercise in favour of more judgment-laden but conscious assessments of associated risk.

Conceptually, discount rate is,
= cost of capital
= rate of return you require on your allocated capital.



Also read:

1. Understanding Discount Rates
2. Risk-free rate
3. Traditional Method: Discount rate or WACC (I)
4. Traditional Method: Discount rate or WACC (II)
5. Modern Portfolio Theory
6. Portfolio Theory: Market Risk Premiums
7. Portfolio Theory: Beta
8. Is the market efficient, always?
9. Discount Rate Determinations: Summary

Traditional Discount rate or WACC (II)

Traditional Method: Discount rate or Weighted average cost of capital (WACC)

Most generally, the practice is to estimate the returns investors are insisting upon for companies bearing like qualities (in terms of industry, capital structure, maturation, size, competitive outlook, and so on).

• For companies with long records of sustained earnings, low rates are indicated, perhaps just a few points above the risk-free rate.
• For newer, more volatile operations, a larger premium is required.

The estimate requires exercising practical judgment based on learning what compensation is given to investors bearing comparable business and financial risks.

• What special business and financial risk do common stockholders face?
• What are the debt levels?
• What is the likelihood that debt investors would be paid before them or that high debt would throw the company into bankruptcy?
• What is the company’s financial strength and industry leadership?
• Is its market expanding or contracting?
• Is there room for growth that will add value?

In short, assessing risk relevant to the discount rate implicates the same questions value investors ask when defining circles of competence.

Value investors see risk as arising from either

• deterioration in an investment’s business value or
• overpaying for it in the first place.

Overpayment can result from inadequate or mistaken analysis of these questions. The possibility of misrelating price and value implies a commonsense point: High stock prices compared to earnings make for high-risk investments.

A value investor’s conception of risk differs from that of modern finance theory, today’s dominant model for defining risk. This theory measures risk using market price fluctuations as proxies for underlying business-value changes. While the exercise appears precisely scientific, in fact it is as judgment-laden as the traditional method. It also defies common sense: In this model, the fact that a stock price is high or low compared to earnings has no bearing on risk. Despite these weaknesses, the widespread use of this model warrants summarizing it as a contrast to value investing.

Also read:

1. Understanding Discount Rates
2. Risk-free rate
3. Traditional Method: Discount rate or WACC (I)
4. Traditional Method: Discount rate or WACC (II)
5. Modern Portfolio Theory
6. Portfolio Theory: Market Risk Premiums
7. Portfolio Theory: Beta
8. Is the market efficient, always?
9. Discount Rate Determinations: Summary

Traditional Discount rate or WACC (I)

Traditional Method: Discount rate or Weighted average cost of capital (WACC)

To the risk-free is added an amount reflecting risks associated with a particular investment. This produces the discount rate to apply to determine the present value of an asset.

For a business with debt and equity in its capital structure, this is commonly called the weighted average cost of capital (WACC). It is the proportional cost of a company’s debt, determined by the after-tax interest cost, and the cost of equity, determined by a more judgment –laden but conceptually identical inquiry.

The cost of equity is conceptually identical to the cost of debt because they involve the same question:

• What must the company pay to induce investment, whether from debt lenders or equity holders?

The cost-of-equity exercise is more judgment-laden than the cost-of-debt exercise because there are no maturity dates or set coupons on equity (dividends are payable solely in the corporate board’s discretion).

The key reference is what other capital market participants are paying investors to attract equity financing form enterprises of comparable risk.

• To estimate the cost of equity capital for high-risk venture capital projects, for example, one could consult the returns offered by venture capitalists in such enterprises.
• For low-risk enterprises, underwritten secondary public offerings of blue-chip companies can be examined.

Also read:

1. Understanding Discount Rates
2. Risk-free rate
3. Traditional Method: Discount rate or WACC (I)
4. Traditional Method: Discount rate or WACC (II)
5. Modern Portfolio Theory
6. Portfolio Theory: Market Risk Premiums
7. Portfolio Theory: Beta
8. Is the market efficient, always?
9. Discount Rate Determinations: Summary

Understanding Discount Rates

Discount Rates

Choosing an appropriate discount rate (or cost of capital) is necessary to determine present value, whether measured by current earnings or a more elaborate discounted cash flow model.

The discount rate must reflect

• the time value of money and
• the specific risks associated with te individual company.

Equity is riskier than debt, so the discount rate for a given company will be some increment above the prevailing rates at which any debt it has outstanding are being discounted. The challenge is determining how much greater.

Conceptually, think of the discount rate as the rate of return a prudent investor would require for allocating capital to the subject company

A high-risk venture would warrant a proportionately high discount rate; a sure thing, a rate probably equal to the time value of money.

The surest investments in contemporary investing are U.S. government securities. These furnish the risk-free rate.

Appropriate discount rates for most corporate equity will take U.S. government securities as the starting point and add an additional element.

Considered below are two alternative conceptual approaches to thinking about and settling upon an appropriate discount rate,

• one traditional and
• one from modern finance theory.

Also read:

1. Understanding Discount Rates
2. Risk-free rate
3. Traditional Method: Discount rate or WACC (I)
4. Traditional Method: Discount rate or WACC (II)
5. Modern Portfolio Theory
6. Portfolio Theory: Market Risk Premiums
7. Portfolio Theory: Beta
8. Is the market efficient, always?
9. Discount Rate Determinations: Summary

Choosing a Discount Assumption

Choosing a discount assumption

In theory, the discount rate should be your own personal cost of capital for this kind of investment. If you have a million dollars and can invest it with no risk in a Treasury bond at 6 percent, your cost of capital is the risk-free 6 percent you would forgo by not investing in the bond. So the implied cost of your dollars made available to invest in Business XYZ starts at 6 percent. Financial types refer to this opportunity cost as the risk-free cost of capital.

But implicitly, Company XYZ common stock is riskier than the bond investment. Sales, earnings, and myriad other intrinsic things can change, as can markets and the market perception of XYZ’s worth. So an equity premium is added to the risk-free cost of capital rate. In effect, the total cost of capital is your required compensation, or hurdle, for the opportunity you’ve lost by not buying the bond, plus the assumption of risk by investing in XYZ.

Much has gone into identifying appropriate risk premiums and the like. Modern portfolio theory and its reliance on beta – a measure of relative stock price volatility – doesn’t really do much for most value investors. (Remember: Price doesn’t determine value.)

The keep-it-simple-safe (KISS) approach used by most value investors, including Warren Buffett, is to discount at a relatively high rate, usually higher than the growth rate. Buffett uses 15 percent as a discount, or “hurdle” rate – investments must clear a 15 percent “hurdle” before clearing the bar. The 15 percent hurdle incorporates a lot of risk, especially in today’s environment of relatively low interest rate and inflation. Conservative value investors usually use discount rates in the 10 to 15 percent range.

As you build and run models, you’ll see firsthand how the discount rate affects the resulting intrinsic value. Here are a few points to remember:

• The higher the discount rate, the lower the intrinsic value – and vice versa.
• The second-stage discount rate should always be higher than the first stage. Risk increases the farther out you go.
• If you choose an aggressive growth rate, it makes sense also to choose a higher discount rate. Risk of failure is higher with high growth rates.
• If the discount rate exceeds the growth rate, intrinsic value will be low and implode more quickly the larger the gap. Aggressive growth assumptions with low discount rates yield very high intrinsic values.

If you’re worried about earnings and earnings growth consistency and want to factor it in somehow, but don’t want to do a deep statistical analysis on a zillion numbers, Value Line does one for you. At the bottom right corner of the Value Line Investment Survey sheet is a figure called “Earnings Predictability” if the Survey covers the company you’re evaluating.

It’s really a statistical predictability score normalised to 100 (100 is best, 0 is worst). A score of 80 and higher indicates relative safety; below 80 means that you may want to attenuate growth rates or bump up the discount rate to account for uncertainty.

Here again is the set of growth and discount assumptions used for an example. Consistency is important, but growth rates will vary for each company, and discount rates may change also with differing risk assessments.
First-stage growth 10%
Second-stage growth 5%
First-stage discount rate 12%
Second-stage discount rate 15%

Ref: Intrinsic Value Model