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Calculation of equity value of an entity – FCF?

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Calculation of equity value of an entity – FCF?

  • This topic has 1 reply, 2 voices, and was last updated 5 years ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
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  • September 1, 2020 at 4:48 am #582936
    Poojamuchhal
    Member
    • Topics: 1
    • Replies: 0
    • ☆

    I had a confusion while calculating the equity value of an entity.
    I calculated Free cash flows to equity and discounted it at cost of equity.

    but the suggested answer was Free cash flows to firm , discounted at cost of capital and then equity proportion was calculated out of it (using the debt equity ratio)

    Is my treatment wrong?

    September 1, 2020 at 8:36 am #582961
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54835
    • ☆☆☆☆☆

    Your treatment is not wrong – either approach is fine. Which approach to use depends on the information given in the question.

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