Unlevered VS levered DCF
Can someone pls explain what is wrong my logic here … driving me crazy…
When you do a unlevered DCF you get to an enterprise value, strip out net debt and you get equity value. Makes sense.
When you do a levered DCF you strip our interest payments at each year and eventually get to an equity value.
Assuming your unlevered and levered DCF should theoretically get you to the same equity value, does this imply that the present value of your interest payments is effectively equal to your net debt?
I believe the cost of capital (the discount rate) also changes
As another poster has commented, you'll be discounting using only the cost of equity.
However, you're also missing that the debt needs to be repaid at some point, and needs to be factored into your cash flows.
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