There was a discussion about it yesterday but I just want to make sure that the concensus is that: after firm is valued using FCFF or FCFE, there should be an adjustment made in the amount of cash + marketable securities or : Firm value = FCFF/(WACC-gF) - MV of debt + cash + marketable securities Firm value = FCFE/(k-gE)+cash + marketable securities
that was the question I was asking that I never got an answer to. Firm value is: Firm value = FCFF/(WACC-gF) + MV of debt + Cash + marketable securities Equity value = FCFE/(k-gE)+cash + marketable securities - MV of debt
i thought it was… FCFF = EBIT(1-t) + D - FCINV - WCINV and WCINV is the change in wc, excluding cash, cash equivalents, notes payable, current portion of debt… then you value the firm using FCFF/(wacc-g) = V
when I said Firm Value I was only talking to the portion due to the shareholders.
Im_Awesome Wrote: ------------------------------------------------------- > i thought it was… > > FCFF = EBIT(1-t) + D - FCINV - WCINV > and WCINV is the change in wc, excluding cash, > cash equivalents, notes payable, current portion > of debt… > > then you value the firm > using FCFF/(wacc-g) = V Thats the exact same question I have - I still don’t know the answer. But I think that when you calculate FCFF by itself what you have is correct. When you want to valuate the firm, you have to do adjustments I posted - I’m not sure and this was the question I had and I’m still trying to figure out which it is
The number you get using FCFF/(wacc-g) is the value of the firm. To get the value to for equity, you would just subtract out the Market value of debt. I wouldn’t think too much into this, as I don’t think they will test this deep into it. Just remember FCFF is caculating FIRM value. You would need to make adjustments to that number to get market value of equity.
LanceTX Wrote: ------------------------------------------------------- > The number you get using FCFF/(wacc-g) is the > value of the firm. To get the value to for equity, > you would just subtract out the Market value of > debt. I wouldn’t think too much into this, as I > don’t think they will test this deep into it. Just > remember FCFF is caculating FIRM value. You would > need to make adjustments to that number to get > market value of equity. that’s what Secret Sauce says and what I’m comfortable is. I guess I will just hope that I don’t have to make any adjustments.
^^ I don’t think you’ll have too, unless maybe it could be a conceptual question.
deep2002 Wrote: ------------------------------------------------------- > that was the question I was asking that I never > got an answer to. > Firm value is: > > Firm value = FCFF/(WACC-gF) + MV of debt + Cash + > marketable securities > Equity value = FCFE/(k-gE)+cash + marketable > securities - MV of debt Deep/Maratikus ~ do you know the page in the CFAI text where you saw these formulas?
I’m using mostly secret sauce, its in the Equity valuation under “free cash flow to firm” page 114/115 on secret sauce
Schweser p. 196 professors note. It talks about the exces cash/marketable securities and land held for investment that should be added to straight FCFF.
Homies, sometimes as much as we hate it, we have to pull out the CFAI doorstops. Schweser got it right in the note. PG 393/394 of Book 4: NON Operating Assets and Firm Value If a company has significant nonoperating assets such as excess cash, excess marketable securities, or land held for investment, then analysts often calculate the value of the firm as the value of its operating assets plus the value of its nonoperating assets: Value of firm=Value of operating assets + value of non operating assets Recall that when calculating FCFF or FCFE, investments in working capital do not include any investments in cash and marketable securities, the value of cash and marketable securities should be added to the value of the company’s operating assets to find the total firm value. Some companies have substantial noncurrent investments in stocks and bonds that are not operating subsidiaries but financial investments. These investments should be reflected at their current market value. Those securities reported at book values based on accounting conventions, should be revalued to market values. Word.
danke for clearing this up doworkson
Thanks homies 