# Intrinsic value of a firm

Having FCFE, or operating free cash flow (which is FCFF, right?), WACC, growth, and cost of equity, how do you calculate the intrinsic value of the firm?

If you assume that all the free cash flow is paid as dividends (not a remote possibility by the way, that’s why it’s called *free*), then you will use the constant growth model. If not there are estimates for this which goes something like 20 times free casfhflow or 25 times, I don’t recall now. Other ideas?

should I panic now ? is that for the exam ?

FCFF discounted at WACC

can someone go over the logic of when is the intrinsic value = 0 or time value = 0. total value = intrinsic value + time value

can someone go over the logic of when the intrinsic value = 0 or time value = 0. total value = intrinsic value + time value

that’s an options question, not stock.

I just cannot find a reference in the textbook. I found all over the place on the internet, all kinds of formulas, discounting CFO using WACC, or using the DDM approach, but I don’t know what to do with either of them.

FCFF / (r - g) == This seems to be LII portion, unless LOSs have it somewhere. CP

It is L2 material in equity valuation, we should not worry about it but the rule is FCFF @ WACC FCFE @ reqd return on equity. In practice, we never discount CFO, it has to be adjusted to either FCFF or FCFE. S

yes, I meant FCFF/FCFE not CFO

the time value of an option will only equal 0 at expiration. Think of the intrisic value by the amount that the option is in the money. If you have a call with a strike of 20 and the stock is currently at 25, then the intrinsic value of the option is 5. If the option was priced at 6, then the time value would be 1. An out of the money option will always have 0 intrinsic value and the premium will just be the time value. Hope this helps.

mib20, this is not about options, this is about discounting FCFF and / or FCFE to obtain the intrinsic value of a firm or estimated value for a stock.