Abstract
This essay deals with a number of issues concerning company valuation models with special reference to the so-called McKinsey valuation model, presented in Valuation: Measuring and Managing the Value of Companies by Tom Copeland, Tim Koller, and Jack Murrin. Special attention is given to horizon value problems, and we investigate the many hidden assumptions inherent in continuing value formulas. Different equity valuation approaches are also commented upon, and we develop a procedure that yields equivalence between the discounted free cash flow approach and the discounted dividend approach. The procedure is shown to hold under quite general conditions, also when the capital structure is non-constant. Finally, the traditional free cash flow approach, our modified free cash flow approach and the dividend valuation approach are all applied to a real-world company, and it is shown that the latter two yield exactly the same value.