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Hello John,
In my exam I got a question where share price needed to be calculated using FCF, both types of flows, FCFE& FCFF, were given but no information was given to calculate cost of equity, only cost of capital was given. So the value I got by discounting FCFF would be the value of whole firm including debt, right? This was around 15m, but when I subtracted debt of 60m the equity value went negative which isn’t possible, right? In such case what will be the value of a company’s share, zero??Although from what you have written it sounds as though your approach was correct. However I do not think that the examiner would have a question whether the debt was more than the value of the firm.
However I cannot really comment more until the ACCA has published the question and answers (if they ever do, given that they only publish some of the questions on a six-monthly basis).
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