Course Content

Mastering Discounted Cash Flow Analysis with Excel

1. Introduction to Business Valuation

What You'll Learn About DCF and Business Valuation Why Valuing a Business Matters for Investors and Owners Overview of Business Valuation Methods

2. Understanding Discounted Cash Flow (DCF) Analysis

Introduction to the Discounted Cash Flow Valuation Method DCF Money Printing Machine Example DCF Formula Calculations

3. Cash Flow Forecasting and Discount Rate Fundamentals

How to Calculate Unlevered Free Cash Flow (UFCF)Understanding the Discount Rate in Valuation How to Calculate Cost of Debt Cost of Debt Calculation Example How to Calculate Cost of Equity (CAPM)How to Calculate Cost of Equity Using Build Up Method Cost of Equity Calculation Example

4. WACC, Terminal Value & Sensitivity Analysis

Weighted Average Cost of Capital (WACC) Calculation Terminal Value (TV) and Perpetuity Growth Rate (g)Terminal Value Calculation Example Sensitivity Analysis in DCF Valuation

5. Building a DCF Valuation Model in Excel

Company Overview and Valuation Objective Exploring the Excel-Based DCF Model Modeling the Income Statement Items Modeling the Balance Sheet Items Creating Clean Income Statement Output Creating Clean Balance Sheet Output Building the UFCF Model: From EBIT to Operating Cash Flow Accounting for CapEx, Assets & Reconciliation to Net Cash Flow Forecasting UFCF and Linking Cash Flow to the Balance Sheet Final DCF Calculation and Valuation Output Visualizing Results with Excel Charts Performing Sensitivity Analysis in Excel

6. Practical DCF Case Study – Company Valuation in Action

DCF Assignment Walkthrough: From Inputs to Enterprise Value

Cost of Equity Calculation Example

Let's put the CAPM and Build-Up Method side-by-side using a real company—Tesla—to illustrate how different inputs affect your output.

Recap of the CAPM Formula

$\text{Cost of Equity} = R_f + \beta \times (R_m - R_f)$

Where:

$R_f$ = 4.31% (risk-free rate);
$\beta$ = 2.58 (Tesla's beta);
$R_m$ = 9% (market return).

With these values:

$\text{Cost of Equity} = 4.31\% + 2.58 \times (9\% - 4.31\%) \approx 16.14\%$

The high beta reflects Tesla's volatility, which significantly amplifies the equity cost—something investors demand as compensation for risk.

Build-Up Method in Parallel

Let's assume for comparison:

Risk-free rate: 4.31%;
Equity Risk Premium: 5%;
Size Premium: 1%;
Industry Risk Premium: 2%;
Company-Specific Premium: 1.5%.

$\text{Cost of Equity} = 4.31\% + 5\% + 1\% + 2\% + 1.5\% = 13.81\%$

Even though both methods are valid, they yield different results. The Build-Up Method often produces more conservative estimates for private firms or startups where beta isn't well-defined.

CAPM is dynamic and market-based, suitable for public companies with reliable data;
Build-Up is additive and more controllable, ideal for private or high-uncertainty contexts;
The cost of equity is not a fixed number—it reflects your assumptions and context.

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Section 3. Chapter 7

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