Sir , i dont understand why the examiner uses different methos each time to calculate, in this question he is saying estimate current value of equity using free cash flows,
Now what he does is calculate the future cash flows based on past growth rate pattern, what normally is done would be to calculate all 3 years free cash flows and then take the future cash flows and then discount them all and then get market value of equity? Am i right?
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9y ago#1We use free cash flows to the firm (before interest) and discount at the WACC to get the total market value of the company (equity plus debt).
We use free cash flows to equity (after interest) and discount at the cost of equity, to get the market value of the equity.
Which we do depends on what the question requires.
Very important point thank u sir alot! But one thing sir that of all questions ive done, and ive seen both cases i have never seen examiner subtracting interest , which i guess should be ignored?
9y ago#3Maybe it was because he was starting with the profit after interest.
Oh yes ! Thanks for pointing that out !
9y ago#5You are welcome :-)
Hello sir,
why dont we add Mijes PAT when considering the cash offer?
8y ago#7But it is the additional earnings that determine the extra value.
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