Hello, I have to evaluate a contract of distribution of a 7 year period. But the issue is that the value depends on the remaining duration of the contract (value @Y1 is different then @Y4) and if it will be renewed or not : which method should I use? Thanks in advance

Question

anonymous · Answer

Welcome to Open Study :)

Have you tried some method?

anonymous · Answer

Hello Machida :
- I applied the DCF method on remaining contract duration i-e one simulation per year : which WACC should I use? the same for each year (as soon as we are close of the end of the contract the risk is lower)
- and I tried to value the renewal option by using % of probability : I assume an unique FCF per annum x % of probability and I discounted each DCF. But if the contract is not renewed, should I consider restructuring 
Thanks for your help