Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › FCF business valuation
- This topic has 6 replies, 2 voices, and was last updated 4 years ago by John Moffat.
- AuthorPosts
- August 5, 2019 at 12:24 pm #526264AnonymousInactive
- Topics: 51
- Replies: 52
- ☆☆
Sir,
1) PV of FCF of company is one of method to value the company. And we will discount future free cash flow to present value.
However what i see in Nente co Jun/12 and staple group marjun/16, value of nente co and staple view has been valued without any PV discount. I know that growth factor has been included for calcualtion, but the fact that it was not discounted from yr 1 cashflow makes me confusing.
2) i valued staple view using 4% increase in profit and investment required, as if it is yr 1 CF, and CF onwards. Although the final value i got 452.45 is equivalent to suggested answer, i am confused because it seems future cash flow has not been discounted.
Could you please explain about this?
Thank you so much sir
August 5, 2019 at 3:28 pm #526311Using the dividend growth model is a way of getting the PV of inflating cash flows.
When valuing shares Do is the current dividend and it gives the MV at time 0.When using the formula to discount inflating cash flows, Do is the current cash flow and Po is the PV at time 0.
In both cases it gives the PV assuming that the first flow is in 1 years time.
August 6, 2019 at 12:42 am #526352AnonymousInactive- Topics: 51
- Replies: 52
- ☆☆
Is this applicable to both FCF to firm and equity method? nente co is FCF to firm and staple view is FCF to equity.
August 6, 2019 at 3:29 am #526356AnonymousInactive- Topics: 51
- Replies: 52
- ☆☆
2) and for Dividend valuation model, should ke only be cost of equity? Not WACC?
August 6, 2019 at 8:11 am #526377It applies to any inflating perpetuity.
If valuing equity we use the dividends and the cost of equity.
If using it on free cash flows to the firm then we use the WACC in the formula.
August 6, 2019 at 10:54 am #526408AnonymousInactive- Topics: 51
- Replies: 52
- ☆☆
Thank you sir
August 6, 2019 at 3:26 pm #526433You are welcome 🙂
- AuthorPosts
- The topic ‘FCF business valuation’ is closed to new replies.