DCF Valution with Untilised Land

Rajan (NA) (54 Points)

15 May 2020  

Dear All,

I am in the processing of valuing a company in DCF Method. The Company is in the business of manufacturing steels and aluminium products. I have done the business project for 5 years, calculated terminal growth and Cost of Capital. Based on this, I have also arrived at the Enterprise Value of the Company based on the Business Projection.

 

However, the Company has a vacant land which is not being utilized as of now or in the future and the same was not taken into account in the DCF valuation except as BS sheet item (in the projections) whose present market value is 10x of the book value.

My question is that should we include the value of the Land as per market value/book value in the Enterprise Value? We will not be able to do a DCF Valuation of Land (Real Estate Asset) as the promoters do not have any intention to utilize or sell the asset in the near future and hence no projections can be drawn.

Thank you,

Yours sincerely,

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Rajan