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Do we take in consideration the size of the growth? And the WACC? Why?

Do we take in consideration the size of the growth? And the WACC? Why?

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Answer #1

Valuation of Firm = Value of debt + value of equity

Valuation of firm is calculated using concept of FCFF (free cash flow for firm)

Valuation of firm =

where FCFF (1) is the free cash flow for firm next year

FCFF(2) is the free cash flow after 2 years

If the growth rate is higher, then the year on year FCFF generated by the company will be higher, then higher the valuation of the firm

WACC (weighted average cost of capital): wacc is used as the rate to discount the free cash flows. The lower the value of wacc, the higher will be the value of the firm

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