Please how do i calculate Equity value if the firm will be taking a loan in say 5 years (which obviously will help the organization generate the cash flow it needs) in addition to the current debt on the company’s balance sheet.
Do I find the present value of the debt to be raised in 5 years to today and subtract it in addition to the current debt from the FCFF to arrive a Equity Value.
For instance, the cash flow generated by the firm is discounted to the present value to get FCFF (which is the same as the company’s overall value).
So, i need to subtract Debt to arrive at Equity Value.
Do I just subtract current dent alone, or I have to subtract the future debt as well?
I was thinking finding the PV of the future debt and subtracting it from the FCFF will give an adequate value of equity.
Please I need your view.
What kind of loan is it? If it will help to enhance a firm liquidity, is it a revolving loan?
No, say a 6 years long term loan, that will be used as part of the company’s asset that generates income. Assume I am trying to value the business after 2 years of taking the loan, which means the loan still have like 4 years repayment period.
How do I capture the value of the loan in the calculation of equity value?
Do I take the PV of the remaining market value of the debt and add it to current debt and then subtract them both from the FCFF?
That is what I want to know.
Equity value Total Assets - Total Liabilities. Thus if indebtedness reached goal and enhanced a company value, its net effect in equity valuation is positive.
If you’re evaluating a company from shareholders perspective, you might rather use a FCFE approach and thus you should discount only net equity changes.