Valuation Using Discounted Cash Flows - Basic Formula For Firm Valuation Using DCF Model

Basic Formula For Firm Valuation Using DCF Model

value of firm = 
\sum_{t=1}^n \frac{FCFF_t}{(1+WACC_{g})^t} + \frac{\left}{(1+WACC_{g})^n}

where

  • FCFF is the Free Cash Flow to the Firm (i.e. Operating cash flow minus capital expenditures)
  • WACC is the Weighted Average Cost of Capital
  • t is the time period
  • n is the number of time periods
  • g is the growth rate
  • value of firm is enterprise value

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