Is it true to say that : a) V0 = FCFF1 / (WACC - g) is a valuation of the *firm* (Debt + Equity) and b) V0 = FCFE1 / (r - g) is a valuation of the *equity* only That seems very logic but I realized that this morning and I’m not sure about it. Could you confirm?
yes…that is the whole idea of calculating the two cash flows differently and discounting them at different rates… FCFE discounted gives you value of equity - you would use this to calculate your per share value ( market price) FCFF discounted gives you value of entire firm - you would have to remove market value of debt and then use the amount to calculate your per share value
Concur. You can also use FCFF to calc firm value and then subtract the MV of debt to get the value of the equity. Edit: Just realized I repeated what mumu said.
Mumu is correct, If you like formulaes… V0(FCFE) —> Intrinsic P0 [Vo(FCFF) - MarketValue(Debt)] ----> Intrinsic P0
You are amazing. Thanks guys.