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Learning Objectives
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Now · 1. Discounted Cash Flow (DCF) Valuation
Learning Objectives
- Apply DCF valuation methods
- Use comparable company analysis
- Value companies for M&A and investment decisions
1. Discounted Cash Flow (DCF) Valuation
Free Cash Flow to Firm (FCFF): FCFF = EBIT(1-t) + Depreciation - CapEx - Change in WC
Enterprise Value: EV = sum(FCFF/(1+WACC)^t) + Terminal Value/(1+WACC)^n
Terminal Value (Gordon Growth Model): TV = FCFF(n+1)/(WACC - g)
2. Relative Valuation
Multiples: P/E, EV/EBITDA, P/B, P/S Select comparable companies, apply median multiple.
3. Asset-Based Valuation
Sum of individual asset values minus liabilities.
| Concept | Formula |
|---|---|
| FCFF | EBIT(1-t) + Dep - CapEx - Delta WC |
| Enterprise Value | PV(FCFF) + TV |
| Terminal Value | FCFF(n+1)/(WACC - g) |
| Equity Value | EV - Net Debt |
Q1: FCFF=$5M, WACC=10%, growth=2%, what is EV?TV = 5(1.02)/(0.10-0.02) = 5.1/0.08 = 63.75M.Ifnoshort−termFCFF,EV=63.75M. Q2: EBIT=10M,tax=302M, CapEx=3M,DeltaWC=1M. FCFF?FCFF = 10(1-0.30) + 2 - 3 - 1 = 7 + 2 - 3 - 1 = $5M Q3: Why use EV/EBITDA rather than P/E?EV/EBITDA is unaffected by capital structure differences, making it better for comparing firms with different leverage. Q4: Company has EV=100M,debt=30M, cash=$5M. Equity value?Equity Value = 100 - 30 + 5 = $75M Join Discord PreviousDividend PolicyNextWorking Capital Management