Is a DCF analysis independent of capital structure?
Lately I have been hearing that when asked in an interview if a DCF is independent of capital structure, the answer is always yes. I do not understand this however. If this were true, two identical firms with differing cap structures would theoretically have the same intrinsic value- but this makes no sense because the discount rate would be different given the same free cash flows.
From a cash flow perspective yes, but not from a wacc perspective.
The formula for WACC is dependent on cap structure.
The above user is correct. Only nuance I would add is if you're focusing on FCFE as opposed to FCFF. If for whatever reason you're using one instead of the other, interest expense will result in different cash flows. I acknowledge that people typically focus on FCFF, but depends on what the DCF analysis is specifically being used for.
The "D" in DCF implies that you are discounting the cash flows... The discount rate is dependent upon capital structure. How could a DCF be independent of capital structure?
Yep, restatement of my original question
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