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Hi
In the course notes I can see the formula for calculating the value of an org based on future FCFS, I can not see a formula for FCFE,
On the notes though, can you advise as to a FCFE Formula please?Also it is important to be able to differentiate which of two to use for different scenarios in the exam?
Thanks
There is no formula.
Free cash flows are cash available to cover all long-term finance (i.e. before interest payments) and the present value of these gives the value of the whole business.
(The formula is how we sometimes approximate to it but it depends what information is given in the question)Free cash flows to equity are the cash available for shareholders (i.e. after interest) and discounting these at the cost of equity gives the value of the equity.
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