Computing Value of the project (Enterprise value)

CFA Level I
#1

Hello All,

Let’s say that the following cash flows of the project:

Cf0 = -100

CF1 = 45

CF2 = 65

CF3 = 90

When we calculate the value of the firm, why do we calculate the PV of all future cash flows? Why don’t we subtract the investment required at t=0? I am curious. Can someone please guide me?

In above example, I got Value = 163.81 @ 9.51% WACC.

Please help.

Allalongthewatchtower

#2

For the same reason that you don’t subtract the price you pay for a bond from the value of the bond.