EV Formula from BIWS
Hi,
just scrolled through some of the BIWS materials and saw the following calculation for EV (they use "company value") : Cash Flow / (Discount Rate – Cash Flow Growth Rate).
Isn't that a rather vague way to express it? Seems like a mixture of FCF/(1+WACC)^x and EDIT: FCFn*(1+g)/(WACC - g).
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What? no, you have your formulas backwards
What do you mean?
Lol, your edit both answers your question and shows you understood my post. Stop playing dumb.
Dude, no need to be playing as its obvious that I don't know my shit. Thanks for confirming that my edit is correct. However, what about the formula from BIWS. Your reply to my initial question was "no, ..", i.e. the formula is correct. But is it really?
Yes it's correct. It's the same as what you have written. Is your concern that it's not multiplied * (1+g)?
But there should be two parts. A sum of FCFs discounted with WACC and a terminal value discounted with WACC - g (assuming PGM is used). Summarizing tis to Cash Flow / (Discount Rate - Cash Flow Growth Rate) douesn't seem accurate, does it?
This enterprise value formula is for a single period capitalization where you assume a steady cashflow into perpetuity. As others have said typically you would PV the cash flow each year then the terminal value would represent the portion of the EV related to the business in perpetuity.
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