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Dear Sir John,
If the question did not specify, how would I know whether to use free cash flows to firm or free cash flows to equity? Are there any ways of identifying which one to use?
The question usually does say.
If we are valuing the business then we use the free cash flows and discount at the WACC.
If we are valuing the equity that we use to free cash flows to equity and discount at the cost of equity.If you are unsure in the exam, then state your assumption and you will still get most of the marks.
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