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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Firm value vs equity value
Dear Mr. Moffat,
solving the MOCK I realized that I still mix total value of the firm and equity value.
Would it be correct, if I summarize the following (?):
Firm value:
1. If I use free cash flow to firm (where I ignore % and use WACC, can also include growth model of free cash flow) – would give me firm total value and I must substract market value of debt to arrive to the equity value
2. In all other cases:
– bootstrapping P/E to earnings
– using growth model based on PAT
– free cash flow to EQUITY (including % expense and discounting at cost of equity)
would give me directly cost of equity and no substracting of debt is needed.
Would it be the correct summary?
Thank you!
Yes, that all seems to be correct 🙂
Thanks you so much!
You are welcome 🙂