How much is intrinsic value of Alphabet based on discounted Cash Flow?

\text{FCF} = \text{Operating Cash Flow} – \text{Capital Expenditures (CapEx)}

\]
– Use historical FCF data and project it into the future, typically for 5–10 years.

2. **Project Future FCF Growth:**
– Estimate the growth rate of FCF based on Alphabet’s historical growth, industry trends, and future prospects. For example, you might assume a growth rate of 10%–15% for the next 5 years, followed by a slower terminal growth rate.

3. **Calculate Terminal Value:**
– After the projection period, estimate the **terminal value** using the perpetuity growth method:
\[

\text{Terminal Value} = \frac{\text{FCF in the final year} \times (1 + g)}{r – g}

\]
Where:
– \( g \) = long-term growth rate (e.g., 3%–4%, roughly in line with GDP growth).
– \( r \) = discount rate (e.g., weighted average cost of capital, WACC).

4. **Discount Future Cash Flows:**
– Discount the projected FCF and terminal value back to the present using the formula:
\[

\text{Present Value} = \frac{\text{Future Cash Flow}}{(1 + r)^t}

\]
Where:
– \( r \) = discount rate.
– \( t \) = time period (year).

5. **Sum the Present Values:**
– Add the present values of the projected FCF and terminal value to get the total enterprise value (EV).

6. **Adjust for Net Debt:**
– Subtract net debt (debt minus cash) to arrive at the equity value.

7. **Divide by Shares Outstanding:**
– Divide the equity value by the number of shares outstanding to get the intrinsic value per share.

—

### Example Calculation (Hypothetical):

Let’s assume the following for Alphabet (these are illustrative numbers; you’ll need to update them with real data):

– **Current FCF (2023):** $50 billion.
– **FCF Growth Rate (next 5 years):** 12%.
– **Terminal Growth Rate:** 3%.
– **Discount Rate (WACC):** 8%.
– **Shares Outstanding:** 6 billion.

#### Step 1: Project FCF for 5 Years
\[

\text{FCF Year 1} = 50 \times 1.12 = 56 \\

\text{FCF Year 2} = 56 \times 1.12 = 62.72 \\

\text{FCF Year 3} = 62.72 \times 1.12 = 70.25 \\

\text{FCF Year 4} = 70.25 \times 1.12 = 78.68 \\

\text{FCF Year 5} = 78.68 \times 1.12 = 88.12

\]

#### Step 2: Calculate Terminal Value
\[

\text{Terminal Value} = \frac{88.12 \times (1 + 0.03)}{0.08 – 0.03} = \frac{90.76}{0.05} = 1,815.2 \text{ billion}

\]

#### Step 3: Discount Cash Flows
\[

\text{PV of FCF Year 1} = \frac{56}{(1 + 0.08)^1} = 51.85 \\

\text{PV of FCF Year 2} = \frac{62.72}{(1 + 0.08)^2} = 53.82 \\

\text{PV of FCF Year 3} = \frac{70.25}{(1 + 0.08)^3} = 55.82 \\

\text{PV of FCF Year 4} = \frac{78.68}{(1 + 0.08)^4} = 57.85 \\

\text{PV of FCF Year 5} = \frac{88.12}{(1 + 0.08)^5} = 59.92 \\

\text{PV of Terminal Value} = \frac{1,815.2}{(1 + 0.08)^5} = 1,233.1

\]

#### Step 4: Sum Present Values
\[

\text{Enterprise Value} = 51.85 + 53.82 + 55.82 + 57.85 + 59.92 + 1,233.1 = 1,512.36 \text{ billion}

\]

#### Step 5: Adjust for Net Debt
Assume Alphabet has **$100 billion in cash** and **$20 billion in debt**:
\[

\text{Net Debt} = 20 – 100 = -80 \text{ billion} \\

\text{Equity Value} = 1,512.36 – (-80) = 1,592.36 \text{ billion}

\]

#### Step 6: Intrinsic Value per Share
\[

\text{Intrinsic Value} = \frac{1,592.36}{6} = 265.39 \text{ per share}

\]

—

### Important Notes:
– This is a **hypothetical example** and does not reflect Alphabet’s actual intrinsic value.
– You need to use **real financial data** (e.g., from Alphabet’s latest earnings report) and adjust assumptions (growth rate, discount rate) based on your analysis.
– The DCF model is sensitive to assumptions, so small changes in growth rates or discount rates can significantly impact the result.

For a precise valuation, consider using financial modeling tools or consulting professional analysts.