I'm stuck with a problem that's ridiculously simple, but I can't seem to wrap my hear around it...
Let's assume there's a company that will invest 450 bucks of CapEx next year to get a stream of free cash flows. When discounting both the CapEx investment (negative number) and the FCFFs at a(let's say 8%), the value is 180 bucks. There's no cash nor debt lying around, the company is basically a 0-risk project, and therefore, 180 = .
Rationally, I wouldn't pay more than 180 dollars between Debt and Equity (at the proportion used to calculate the WACC) to buy this company, but the company has to invest 450 bucks and someone has to fund that. If I raise 300 debt, and 150 equity to fund operations, but EV is 180, wouldn't that make my equity -120?
The logic I use is this: The acquired company is worth 180, and it has 300 in debt. EV = Eq - Net Debt, therefore, Eq = -90.
Where is the mistake?