Free Cash Flow to the Firm Valuation

Overview


Valuation using WACC


The weighted average cost of capital is a way to combine the equations for the value of debt and the value of equity into a single equation for the value of the firm as a whole.
{% V = \sum \frac{FCF_t}{(1 + WACC)^t} %}
where FCF is the free cash flow to the firm.
{% WACC = w_d(1 - TaxRate)r_d + w_e \times r_e %}


  • {% w_d %} - percentage debt
  • {% w_e %} - percentage equity
  • TaxRate - is the corporate tax rate faced by the firm


(see Weighted Average Discounting)

Contents