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I know that to calucate the free cash flow to firm, we will use cost of capital to calucate the total value of firm.
Besides WACC, we usually use Gordon Model, and are there any other methods?
And I am also wondering if Gordon model one kind of cost of capital ?
Gordons growth model is one way of estimating the market value of equity, which is needed in order to calculate the WACC.
That is only relevant when we know what the current dividend and the expected dividend growth rate are.
I suggest that you watch my free lectures – they are a complete free course for Paper P4.
They cover CAPM (which is almost certain to be relevant), estimating the growth rate, and calculating the WACC.Sorry John, I know how to calucate but I don’t understand fully.
June 12, they used FCF x (1 +growth)/ ( cost of capital – growth rate) to calucate company value
I thought this formula is calucating cost of equity … They didn’t calucate WACC in this question.
The formula as it appears on the formula sheet is for calculating the market value of a share (not the cost of equity), which is the PV of the future dividends.
However you can use the same formula to calculate the PV of any inflating stream.
For the market value of equity you use the dividends and the cost of equity in the formula.
For the market value of a business you use the FCF and the WACC in the formula.
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