Understanding Debt & Equity Valuation Models

Introduction

You're deciding whether to invest, refinance, or set targets for performance, so you need clear ways to value claims on a business: debt valuation is the process that converts promised interest and principal into a present price for creditors, and equity valuation converts expected residual cash flows into a value for shareholders; both matter because managers use them to pick financing, and investors use them to pick positions. The objective here is simple and practical: estimate shareholder value (equity) and creditor value (debt) from projected cash flows and the appropriate measures of risk. Valuation converts future cash into a today number you can act on. What this intro omits: model choice, assumptions, and sensitivity work you should defintely run before you trade or raise capital.

Key Takeaways

• Value both creditors and shareholders: debt valuation prices promised coupons/principal; equity valuation prices residual cash flows - both drive financing and investment decisions.
• Primary inputs matter: projected cash flows, discount rate (rf, ERP, beta, credit spread), terminal value, and capital structure - distinguish accounting vs economic cash flows (NI, EBIT, NOPAT, FCF).
• Use DCF for intrinsic equity value (FCFE or FCFF + terminal) and multiples (P/E, EV/EBITDA, P/B) as market cross-checks.
• Value debt via issuer-adjusted discounted promised cash flows or market measures (dirty bond prices, YTM, CDS); track credit metrics (interest coverage, Net Debt/EBITDA, maturities).
• Compute WACC with market weights and after-tax cost of debt, adjust for non-operating items, and run scenario/sensitivity analysis (WACC, terminal growth, working capital); deliver a 5-year projection and sensitivity table.

Key inputs and principles

You're building a valuation model and need a clear checklist of what actually moves the answer - not theory. Below I lay out the core inputs, how to pick them, and practical steps you can take this afternoon to tighten your numbers.

Primary inputs: projected cash flows, discount rate, terminal value, capital structure

Start with four inputs that drive valuation: projected cash flows, a discount rate, a terminal value, and the capital structure (market debt and equity weights). If any of these are sloppy, your valuation will be noisy.

Practical steps to build each input:

• Project cash flows: build a 5-year operating model with revenue growth by product/segment, gross margin, SG&A, D&A, capex, and working-capital line items.
• Pick discount rate: target a market-consistent Weighted Average Cost of Capital (WACC) and document each component (see next subsection).
• Compute terminal value: use either Gordon growth (FCF × (1+g)/(WACC-g)) or an exit multiple tied to peer EV/EBITDA; justify g or the multiple with macro and industry data.
• Set capital structure: use market values (equity market cap and market value of debt). If market debt unavailable, use book debt adjusted for fair-value bonds and leases.

Here's the quick math you can run now: start from reported 2025 free cash flow post-capex $350,000,000, grow it by your plan for five years, then discount with your WACC to get present value.

One-liner: clean inputs make a valuation you can act on.

Discount rate components: risk-free rate, equity risk premium, beta, credit spread

The discount rate translates future cash into today's dollars; it must reflect time value and risk. For the cost of equity use the Capital Asset Pricing Model (CAPM):

• Cost of equity = risk-free rate + beta × equity risk premium (ERP).
• Cost of debt = observed pre-tax bond yield or credit curve for the issuer; then apply (1 - tax rate) for after-tax cost.
• WACC = E/V × Re + D/V × Rd × (1 - tax rate), using market values for E and D.

Practical checklist:

• Use the current 10-year Treasury for the risk-free rate and cite the date you pulled it.
• Compute beta from a 2-5 year regression to a market index, adjust toward 1 (Blume) if you expect mean reversion, and show raw vs adjusted betas.
• Pick an ERP backed by recent academic/consultant surveys; show sensitivity ±1%.
• For debt, use the issuer's bond curve or bank loan pricing; if bonds trade thinly, add an appropriate credit spread over risk-free based on rating and CDS if available.
• Document tax rate and any expected changes - minor tax changes move WACC materially for highly leveraged firms.

Here's the quick math using Company Name's implied WACC: given enterprise value ≈ present value of operations $4,800,000,000 and implied equity $3,650,000,000 with net debt $1,150,000,000, the weights are ~76% equity / 24% debt. To hit a WACC of 8.5%, the model implies a cost of equity near 9.8% and an after-tax cost of debt near 4.3% (assumes a standard tax rate); doc these assumptions and test ±1% moves.

One-liner: break your discount rate into parts, justify each, and stress-test them.

Accounting vs economic cash flows: NI, EBIT, NOPAT, free cash flow

Valuation uses economic cash flows (actual cash available to investors), not accounting profits. Know the translations and pick the right FCF for your valuation flavor:

• Net Income (NI) - accounting profit after interest and tax; useful for FCFE (free cash flow to equity) starts.
• EBIT (earnings before interest and tax) - operating profit before financing; start here for FCFF (free cash flow to firm).
• NOPAT (net operating profit after tax) - EBIT × (1 - tax rate); true operating earnings ignoring financing effects.
• FCFF (free cash flow to firm) - NOPAT + D&A - capex - Δworking capital; cash available to all capital providers.
• FCFE (free cash flow to equity) - FCFF - interest×(1-tax) + net borrowings; what flows to equity holders.

Practical conversion steps:

• Start from EBIT → compute NOPAT with a normalized tax rate.
• Add non-cash charges (D&A), subtract capital expenditures (capex), and adjust for working-capital changes to get FCFF.
• Choose FCFF when valuing the whole firm (use WACC); choose FCFE when valuing equity directly (discount with cost of equity).
• Normalize one-offs (asset sales, restructuring) and use 3-5 year averages for volatile items like working capital.
• Reconcile your modeled 2025 lines: EBIT is $820,000,000 (reported as EBITDA here), and after capex your reported free cash flow is $350,000,000 - that implies aggregate taxes, capex, D&A, and ΔNWC consumed about $470,000,000 of EBITDA; show the bridge in the model.

What this estimate hides: timing differences (receivables lag), one-time tax refunds, and lease capitalization can swing FCF; run a simple sensitivity: ±30 days of receivables or capex changes of ±10% to see the per-share impact. defintely show the bridge in the output tab.

One-liner: translate accounting lines to cash flows explicitly and show the reconciliation tab in your model.

Next step: Finance - build the 5-year operating model using 2025 base lines (revenue $4,200,000,000, EBITDA $820,000,000, FCF post-capex $350,000,000, net debt $1,150,000,000) and deliver a sensitivity table by Friday.

Understanding Equity Valuation: DCF and multiples

DCF steps: forecast FCFE or FCFF, pick discount rate, compute terminal value

You're valuing equity and need a reproducible path from operating cash to per‑share value; start with a clean operating model and pick FCFF (free cash flow to firm) or FCFE (free cash flow to equity) deliberately.

Step sequence - the practical checklist:

• Project revenue, margins, working capital, and capex for 5-10 years.
• Derive FCFF: NOPAT (net operating profit after tax) + D&A - capex - Δworking capital.
• Derive FCFE when capital structure is stable: FCFE = FCFF - interest(1-tax rate) + net borrowing.
• Choose discount rate: use WACC for FCFF, cost of equity for FCFE.
• Compute terminal value: perpetuity (Gordon) or exit multiple; justify terminal growth below long‑run GDP/inflation.
• Discount explicit-period flows and terminal value to present; subtract net debt and add non‑operating assets to get equity value.

Best practices and traps to avoid:

• Use market values for debt/equity when computing WACC.
• Keep tax rate consistent with cash taxes, not statutory rate if they diverge.
• Don't double-count working capital in terminal value - normalize working capital to revenue.
• Check that terminal ROIC (return on invested capital) is realistic for the growth rate you assume.

Here's the quick math on a real‑figure example for Company Name (2025): starting FCF (post‑capex) $350,000,000, project 3% annual growth to 2030, terminal growth 2.5%, WACC 8.5% → present value of projected cash flows ≈ $4,800,000,000; minus net debt $1,150,000,000 → implied equity ≈ $3,650,000,000; implied per‑share ≈ $12.17 (derived as $3,650,000,000 / 300,000,000 shares).

What this estimate hides: sensitivity to WACC (±1% moves per‑share by roughly 15-20%), terminal growth assumptions, and working capital timing - defintely run sensitivity tables and scenario cases.

Multiples: P/E, EV/EBITDA, P/B, and how to use comps

Multiples give you market reality - they're a cross‑check, not a replacement for an intrinsic DCF. Use multiples to sanity‑check and to triangulate value ranges.

Practical steps to build a multiples check:

• Select peers: same industry, business mix, and growth profile; use 6-12 names.
• Choose the right multiple for the question: P/E for equity cash flows, EV/EBITDA for operating value, P/B for capital‑intensive or financial firms.
• Normalize metrics: adjust for one‑offs, nonrecurring items, and accounting differences (leases, pension, IFRS vs US GAAP).
• Use LTM and consensus forward multiples; prefer forward when projecting future cash flows.
• Convert enterprise value to equity value: Equity = EV - net debt + non‑operating assets.
• Apply a range (25th-75th percentile) of peer multiples to your forecast metric; show low/median/high implied per‑share values.

Best practices and adjustments:

• Adjust for size and growth gaps by applying a premium/discount (e.g., 1-3 turns on EV/EBITDA for material growth differences).
• Prefer transaction comps for control value, public comps for trading value; reconcile both.
• Watch leverage: companies with high Net Debt/EBITDA should be valued on EV multiples and then delevered carefully.

Cross‑check example for Company Name: if peers trade at a median EV/EBITDA of X, apply that to $820,000,000 EBITDA to get implied EV, then adjust for $1,150,000,000 net debt to compute implied equity and per‑share value; if implied per‑share diverges materially from the DCF $12.17, dig into growth or margin assumptions.

Practical reconciliation: use DCF for intrinsic value, multiples for market reality and cross‑checks

Direct takeaway: use DCF to capture company‑specific cash generation and investment needs, and use multiples to ensure your assumptions are consistent with what the market pays today.

How to reconcile differences - an action list:

• If DCF > multiples: check DCF for aggressive terminal growth, low WACC, or understated capex/working capital.
• If DCF < multiples: verify you didn't understate margins or miss one‑off tax benefits; also check whether the market is paying for shorter‑term momentum.
• Run a matrix: rows = terminal growth rates, columns = WACC; highlight cells that match peer‑implied equity values.
• Document assumptions: anchor a defendable midpoint and show downside/upside ranges with clear drivers (sales, margins, capex).

One‑liner: Use DCF for intrinsic value, multiples for market reality and cross‑checks.

Next step owner: Finance - produce a 5‑year projection and a WACC/terminal sensitivity table for Company Name by Friday.

Debt valuation: cash-flow and market approaches

Cash-flow method

You're valuing Company Name debt to understand what creditors would accept today for promised coupons and principal - and how default risk alters that price.

Takeaway: discount the promised cash flows using an issuer-specific, default-adjusted discount curve so you price both time value and credit risk.

Practical steps

• List promised cash flows: coupon schedule, principal, call/put features, sinking funds.
• Rank claim: determine secured vs unsecured and structural subordination (intercompany, preferred).
• Choose discounting framework: reduced-form (hazard rate + recovery) or risky-rate (risk-free + credit spread).
• Estimate survival/default pattern: derive hazard rates from observable spreads or model PDs (probability of default) from ratings or financials.
• Pick a recovery assumption; market convention is often 40% for unsecured senior debt, but adjust by industry and collateral.
• Compute PV: discount promised CFs by risk-free curve × survival probability, add expected recovery in default periods.

Here's the quick math for a simple reduced-form view: if CDS spread = s and recovery = R, a first-pass hazard rate ≈ s ÷ (1 - R); then use survival(t)=exp(-hazard×t) to weight promised CFs. What this estimate hides: correlation between recovery and default, and term structure of hazard rates.

Best practices

• Use a proper risk-free curve (OIS) for discounting cash flows and apply CDS-derived hazards on top.
• Adjust for embedded options: use option-adjusted pricing if calls/puts matter.
• Validate recovery with comparable distressed recoveries in the sector.
• Document assumptions and run sensitivity to recovery ±10 points and to a front-loaded hazard vs flat hazard.

One-liner: discount the promised coupons and principal with issuer-specific default adjustments - survival probabilities and recovery matter more than you think.

Market method

You want a market-implied view: what investors are actually paying today for similar risk and maturity.

Takeaway: use traded bond dirty prices, yield-to-maturity (YTM), or CDS spreads to assemble a market-implied discount curve; pick the most liquid signal and cross-check with others.

Practical steps

• Collect market quotes: clean prices, accrued interest, YTM, and bid/ask for Company Name bonds. Convert to dirty price = clean price + accrued interest.
• Bootstrapping: use multiple bond maturities to bootstrap a bond-implied credit spread curve over the risk-free (OIS) curve.
• Use CDS spreads where available: convert CDS spread to hazard via s ÷ (1 - R) to get an implied default intensity curve, then map to discount factors.
• Derive implied cost of debt: if bonds trade at YTM y, treat y as the market cost of debt for those maturities (adjust for taxes if using WACC).
• Triangulate: if bond market is illiquid, lean on CDS or on comparable issuers' curves; adjust for seniority and covenants.

Practical caveats

• Dirty price reflects accrued interest; always use dirty price for valuation math.
• Liquidity and technicals can distort spreads - small issuance or dealer inventories can move prices away from fundamental credit view.
• Cross-currency bonds require FX basis adjustments.
• When CDS and bond spreads diverge materially, investigate: short-term funding stress, repo/collateral dynamics, or market segmentation.

Quick example: if a liquid 5‑yr bond for Company Name trades at a YTM of 5.5%, treat that as the market cost of debt for five-year cash flows, then check CDS-implied hazard and recovery to see if default risk or liquidity is driving the yield. One-liner: use market prices (dirty price/YTM/CDS) to see what investors demand now, but always check liquidity and seniority adjustments.

Credit metrics to monitor

You need a short checklist to watch credit health across performance cycles and refinancing windows.

Takeaway: track coverage, leverage, and the maturity ladder - those three steer default risk and your discounting assumptions.

Key metrics and how to use them

• Interest coverage - EBIT (earnings before interest and taxes) ÷ interest expense; aim for > 3x for low risk, under 1.5x is a red flag.
• Leverage - Net Debt ÷ EBITDA; Company Name 2025: Net Debt $1,150,000,000 ÷ EBITDA $820,000,000 ≈ 1.4x, which is generally modest.
• Free cash flow cushion - free cash flow post-capex (Company Name 2025: $350,000,000) relative to interest and maturities due.
• Maturity profile - map principal due by year, revolver availability, and next refinancing window; focus on the next 12-24 months.
• Covenant headroom - track actual vs covenant thresholds monthly; model covenant triggers under stress.

Monitoring cadence and actions

• Update metrics quarterly; refresh maturity ladder and liquidity weekly around refinancing months.
• If leverage creeps above target or coverage falls below covenant buffer, push to extend maturities, negotiate covenant relief, or accelerate deleveraging.
• Stress test: run a 20% EBITDA decline and a 150-300 bp spread widening; see covenant breach probability and refinancing needs.

One-liner: keep leverage, coverage, and maturities in a single dashboard so you see refinancing cliffs before markets do - this helps you act early, not defintely late.

Action: Finance - produce a debt cash-flow valuation using both bond dirty prices and CDS-implied default curves, plus a 12-month maturity ladder and covenant headroom table, due by Wednesday; use Company Name 2025 reported figures as the baseline.

Capital structure, WACC, and adjustments

Compute WACC (weighted average cost of capital) using market values of debt and equity and after-tax cost of debt

You're reconciling a DCF and need a defensible discount rate fast - pick market values, use after-tax debt, and be explicit about assumptions.

Direct takeaway: compute WACC from market equity and market debt, use CAPM for cost of equity, and use observed bond yields (after tax) for cost of debt - then weight by market values.

Steps to compute WACC (practical):

• Get market equity: shares outstanding × market price or implied equity from your enterprise-value model. For Company Name use implied equity = $3,650,000,000.

• Get market debt: use market value of gross debt if available; if not, use reported net debt as a proxy. For Company Name, we have net debt = $1,150,000,000 (use disclosure to convert to gross debt where possible).

• Estimate cost of equity via CAPM: cost of equity = risk-free rate + beta × equity risk premium. Example assumptions: risk-free = 4.3%, beta = 1.10, ERP = 5.5% → cost of equity ≈ 10.35%.

• Estimate pre-tax cost of debt from bond yields or CDS; convert to after-tax using marginal tax rate (use statutory or company marginal rate). Example: bond yield = 5.0%, tax rate = 21% → after-tax cost of debt = 3.95%.

• Compute weights: Equity weight = 3.65B / (3.65B + 1.15B) = 0.7604; Debt weight = 0.2396.

• Compute WACC: WACC = wE×Re + wD×Rd(1-Tc). Using the example numbers: WACC ≈ 0.7604×10.35% + 0.2396×3.95% = 8.82%. Note: the model in the worked example used WACC = 8.5% - document why you pick either.

One-liner: use market weights and after-tax debt consistently; show the math and the assumptions.

Explain default/premium adjustments: convert observed bond yields into appropriate cost of debt for valuation

You want the firm's borrowing cost that matches the profile of the cash flows you're discounting - not a raw headline yield that includes one-offs.

Direct takeaway: convert market instruments (bonds, CDS) into a clean credit spread, strip non-credit premia, then apply taxes to get the valuation cost of debt.

Practical steps and best practices:

• Pick the right instrument: prefer a portfolio of liquid corporate bonds at matching maturities or the 5-year CDS if bonds are sparse.

• Compute credit spread = observed yield - matched-maturity risk-free rate. Example: bond yield 6.0% - Treasury 4.0% → spread = 2.0%.

• Assess non-credit components: remove identifiable liquidity (typically 25-75 bps), tax-driven yields on subordinated issues, or one-off call features. If you can't separate, document the likely bias.

• Decide between YTM and marginal new-debt cost: use YTM for valuing existing bonds; use synthetic/new-debt cost (market spread + current risk-free) for forward-looking WACC if the firm will refinance.

• Calculate after-tax cost of debt = (risk-free + credit spread) × (1 - tax rate). Example with spread above: pre-tax = 6.0%, after-tax = 6.0%×(1-0.21) = 4.74%.

• Document recovery assumptions if you translate CDS-implied probabilities into expected loss. If LGD (loss given default) ≈ 40%, then implied PD = spread / LGD (approx), but call this a coarse back-of-envelope and show sensitivity.

One-liner: use market spreads, strip one-offs, pick YTM vs marginal cost deliberately, and always show the after-tax number used in WACC.

Adjust for non-operating items: excess cash, minority interests, pension deficits, leasing liabilities

You've discounted operating cash flows to get Enterprise Value (EV); now align EV to equity by adding/subtracting non-operating balance-sheet items from the 2025 fiscal year statements.

Direct takeaway: start from PV of operating cash flows (EV), then apply a clean mapping: Equity = EV - Net Debt ± non-operating items, with clear rules for each item.

Checklist and exact treatment (pull amounts from Company Name 2025 balance sheet):

• Excess cash: cash beyond working-capital needs is non-operating - add to equity. Formula: Equity += excess cash.

• Net debt: EV - net debt = implied equity. For Company Name: EV (PV of cash flows) ≈ $4,800,000,000 - net debt $1,150,000,000 = implied equity $3,650,000,000.

• Minority interests (noncontrolling interest): treat as a claim on EV - subtract minority interest when moving to equity if EV already includes it, or add it to equity if you started from equity-side measures. Use the disclosure line item labeled minority interest / noncontrolling interest.

• Pension deficits / surpluses: recognize pension deficits as a liability (subtract from equity) and surpluses as an asset (add to equity). Use projected benefit obligation (PBO) net of plan assets from 2025 filings.

• Leases: under IFRS 16/ASC 842, most leases appear on the balance sheet as right-of-use assets and lease liabilities. Treat lease liabilities as debt-like and include them in net debt (or add explicitly to EV-to-equity bridge).

• Other items: preferred stock (subtract), deferred tax assets/liabilities (adjust if non-operating), marketable securities (treat as cash equivalents or operating if part of business).

Formula reference (practical):

• Enterprise Value (from DCF) = PV of operating cash flows.

• Equity Value = Enterprise Value - Net Debt + Excess Cash - Minority Interest - Pension Deficit - Preferred + Other non-operating assets.

What to document and check:

• Source every item from the 2025 balance sheet or notes and cite the line (e.g., cash and equivalents, lease liabilities, pension obligation).

• Reconcile net debt used in WACC weights with net debt used in the EV bridge-use the same definition.

• Run sensitivity: show equity value impact of +/- 100 bps WACC, +/- 50 bps credit spread, and a plausible range for terminal growth.

One-liner: bridge EV to equity with a checklist and the 2025 balance-sheet lines; for Company Name that bridge is EV $4,800,000,000 - Net Debt $1,150,000,000 = Equity $3,650,000,000.

Finance: produce the 5-year projection and sensitivity table (WACC ±1%, terminal growth ±0.5%) by Friday - owner: Finance.

Worked example for Company Name

Reported figures and immediate takeaway

You're valuing Company Name with 2025 fiscal numbers; the direct takeaway: the quick DCF below implies an equity value of $3,650,000,000, or about $12.17 per share.

Key reported 2025 inputs you'll use:

• Revenue: $4,200,000,000
• EBITDA: $820,000,000
• Free cash flow (post-capex): $350,000,000
• Net debt: $1,150,000,000
• Shares outstanding: 300,000,000

One-liner: these five numbers are the raw drivers of both enterprise and equity value.

Quick DCF math and practical steps

Start with the $350,000,000 2025 free cash flow and project FCF growing 3% annually for the 2026-2030 explicit period, then apply a terminal (Gordon) growth of 2.5% and discount at a WACC of 8.5%.

Practical calculation steps you should run in the model:

• Project FCF each year 2026-2030: FCF(t+1)=FCF(t)×1.03
• Discount each year's FCF back at WACC
• Compute terminal value at end of 2030: TV = FCF2030×(1+0.025)/(WACC-0.025)
• Discount TV back to present and add explicit PVs → enterprise value (EV)
• Derive implied equity = EV - $1,150,000,000 net debt
• Implied per-share = equity / 300,000,000 shares

Using those assumptions this quick approach yields a present value of cash flows (enterprise value) of about $4,800,000,000; subtracting net debt gives implied equity of $3,650,000,000, or roughly $12.17 per share.

One-liner: DCF converts your growth and risk assumptions into a single today number you can act on.

What this hides - key sensitivities and next actions

This quick result hides several important risks and modeling choices you must test before you act. Main drivers to stress-test:

• WACC sensitivity - changes of ±1 percentage point typically swing per-share value by roughly 15-20%
• Terminal growth - small basis-point moves matter a lot for TV
• Working capital - cyclical swings or one-off build/cleanup shift FCF materially
• Non-operating items - excess cash, pension deficits, leases change net debt and equity
• Accounting vs economic cash flow - reconciling NI, NOPAT, and FCFF/FCFE avoids double-counting

Practical next steps (what to run in the model):

• Build a 5-year explicit FCF schedule (2026-2030)
• Run a WACC table ±0.5/1.0% and capture per-share outputs
• Run terminal growth table from 1.0%-3.5%
• Create three scenarios: base / upside / downside
• Cross-check with multiples: EV/EBITDA and P/E against peers

What this estimate hides: model formality, timing mismatches, and macro-rate moves. If interest rates reprice, cost of capital shifts, and the per-share price moves defintely more than you expect.

Owner: Finance - produce the 5-year projection and a WACC/terminal sensitivity table by Friday.

Conclusion

Recap action points: build the model, pick discount rates, cross-check

You're closing the valuation loop: convert the operating plan into cash, pick a defendable discount rate, and verify the result against market multiples.

One-liner: a clean model, justified rates, and market cross-checks make a valuation you can act on.

Concrete steps to follow now:

• Model revenue drivers and margins
• Calculate NOPAT, capex, working capital changes
• Derive FCFF and FCFE line-by-line
• Use market values for equity and debt
• Compute WACC with after-tax cost of debt
• Value terminal with explicit justification
• Cross-check with P/E, EV/EBITDA, and transaction comps

Best practices: tie growth and margin assumptions to explicit operational drivers (unit growth, pricing, mix), document sources for risk-free rate and equity risk premium, and use observed bond yields or CDS spreads to set the cost of debt. Keep inputs auditable so a reviewer can trace from assumption to the $12.17 per-share implied value for Company Name.

Recommended next step: run three scenarios and WACC/terminal sensitivities

You need a scenario set that shows the range of plausible values and the levers that move value most.

One-liner: build base, upside, and downside models and sweep WACC and terminal growth.

Step-by-step checklist:

• Define scenarios: base (management guidance), upside (+50-100 bps margin/accelerated growth), downside (demand shock or margin compression)
• Project 5 years of drivers (revenue growth, gross margin, SGA, capex, WC)
• Compute FCFF and FCFE for each scenario
• Run sensitivity table: WACC range ±1.5% and terminal growth ±1%
• Produce a matrix of per-share outcomes and EV/EBITDA equivalents
• Create two visual checks: sensitivity heatmap and tornado chart

Quick math note: the worked example uses WACC 8.5%, PV of cash flows ≈ $4,800,000,000, less net debt $1,150,000,000 → implied equity ≈ $3,650,000,000 and per-share ≈ $12.17. What this hides: a ±1% WACC move shifts per-share value by roughly 15-20%, and terminal growth or working capital swings can change outcomes materially.

Owner and deliverable: Finance - 5-year projection and sensitivity table by Friday

Owner: Finance owns the model build and the numbers you will use to make decisions.

One-liner: deliver a single, auditable workbook with scenarios and sensitivities by the deadline.

Required deliverables (exact):

• 5-year projection workbook (Excel)
• FCFF and FCFE schedules
• Sensitivity table: WACC ±1.5%, terminal growth ±1%
• Scenario outputs: PV of cash flows, terminal value, implied equity, per-share
• Short memo with key assumption sources and one-page risks

Formatting and checks: include an assumptions tab, keep formulas visible, use market-value debt/equity, and flag any one-off items (excess cash, pensions, leases). Make the model easy to update so you can re-run if input rates change; this will defintely save time.

Deadline: Finance - produce the 5-year projection and sensitivity table by Friday.