Suppose the risk of the company changes based on an internal event how do you recalculate the present value of the company? If the original required interest rate was 8%, with FCF1- 113000, FCF2- 11000, FCF3- 108,000, FCF4- 101000, FCF5- 97000.
How would you compute the new risk if:
Present value of company = Free cash flows 1/(Required rate-Growth rate)
Present value of company company mainly depends on the required rate and growth rate. This required rate is risk adjusted discount. If the risk increases required rate will be adjusted with appropriate risk premium to provide for risk premium.
Present value of company = Free cash flows 1/(Required rate-Growth rate)
Risk adjusted required rate = Required rate+/- Risk premium