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the Enterprise Value of a firm (using the DCF valuation methodology) is arrived at by discounting...

the Enterprise Value of a firm (using the DCF valuation methodology) is arrived at by discounting the after-tax free Cash & Capital Flows available to the firm by the Weighted Average Cost of Capital (WACC). True or False  

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Answer #1

the Enterprise Value of a firm (using the DCF valuation methodology) is arrived at by discounting the after-tax free Cash & Capital Flows available to the firm by the Weighted Average Cost of Capital (WACC).  

correct answer : False

we need to calculate free cash flow to calculate the value of firm. capital flows mean investment in fixed assets and working capital. we deuct them so that we can arrive at free cashflow which is used in value of firm.

so Free cash flow (FCF) is a measure of how much cash a business generates after accounting for capital expenditures. This cash can be used for expansion, dividends, reducing debt, or other purposes.

secondly, if firm's cash flow are growing at regular rate, then we have to use a formula which also uses "g" = growth rate. if growth rate is zero, then only WACC will be considered

see image

which will clear the concept

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