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Ask the Tutor ACCA AFM

Sep Dec 2015

AAJY7y ago
Q1. Typically, in an FCE valuation, we include interest and we discount at the Ke. Right? In this question, which is of course an FCE, we didn't include the interest payment but we discounted at the WACC which still makes sense because the interest was factored when computing WACC. So, does this mean that in the exam, we should first look out for how to arrive at the discount rate before deciding to include interest in an FCE valuation? Right?
John MoffatJohn MoffatTutor7y ago#1
This question isn't free cash flow to equity. The answer calculates the free cash flows to the firm and discounts at the WACC to get the value of the business.
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