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.
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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