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Sir please clarify while calculating value of company when do we use FCF(1+g)/ke-g
and when do we use FCF(1+g)/wacc-g
I am bit confused please help. ThanksFirst, you only use the dividend valuation formula (which is what this is) if there is a perpetuity growing at a constant rate. Otherwise you have to discount the individual flows to get the present value. (The formula calculates the present value if it is a perpetuity growing at a constant rate).
Second, discounting the free cash flow to equity (which is the free cash flow after interest payments) at the cost of equity (or using the formula with FCFE and Ke if it is a perpetuity) gives the value of equity.
Discounting the free cash flows (FCF) (which is the free cash flow before interest payments) at the WACC (or using the formula with FCF and WACC if it is a perpetuity) gives the value of the business (equity + debt).
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