The recap of absolute valuation:
- Company’s future cash-flows are estimated and the assumptions about the future are made;
- The discount rate (WACC) is estimated;
- Future cash-flows are discounted by the discount rate;
- Equity value is estimated by subtracting the value of debt and adding any available cash
- Fair share price is estimated by dividing market capitalisation by the number of available shares.
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Low interest rates make Index prices grow. There some nuances to that too. Economic growth and interest rates offset each other. Higher interest rate increases the WACC and makes equities less attractive.
