Monkeys,
Confused about how to calculate Equity value. i learned that you discount levered free cash flow at the cost of equity and that = Equity value. But, what if you calculate Enterprise value by discounting FFCF, and then add cash, investments and non-core business assets and subtract debt and preferred shares according to their market value? Wouldn't that also = equity value. Are both legitimate methods or am I not understanding something here?
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You can either discount LFCF to the cost of equity or discount UFCF to WACC to get EV and then do the bridge from EV to EqV. Both would be correct but remember: - EV = MVE + NFD + Minorities + PS
Sounds correct, however if I run the numbers for a fictional stream of cash flows (ignoring terminal value), I get slightly different results.
Horizon: 5 years Net Debt: $100MM Interest: $400K UFCF: $350MM (const.) LFCF: $346MM (const.) WACC: 10% CoE: 12.7%
--> EV based on UFCF and WACC: $1,326,775,369.29 --> Equity Value (EV-Net Debt): $1,226,775,369.29 --> Equity Value based on LFCF and COE: $1,225,923,076.81
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