I know this is a dumb question but I have a question regarding the formula below that shows up in IB Guides.
Company Value = Cash Flow / (Discount Rate – Cash Flow Growth Rate), where Cash Flow Growth Rate < Discount Rate.
Why isnt Cash Flow multiplied by (1+cash flow growth rate)? Isnt that practically the gordon growth model?
I know its dumb and I just dont understand why the top isnt multiped by growth.
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That’s not accounting
Because the top number is probably one year forward so no need to apply growth. But usually the formula would be based on (1+g), yes
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