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Hello sir,
I have been trying to find out why some questions calculate the value of a firm through FCF for either the combined value or synergy by simply using the Total PV of FCF figure (i.e they do not deduct the market debt value) for the companies and in some cases they do?
Such as, Pursuit co for the prior- no deduction of debt value.
And Makonis Co or Vogel co with the latter.FCF- debt, makes the Market Value i.e the Market price suited for acquisition or for SHolders.
Whereas the Value of the firm, indicates the value generated by all financial providers…Is there something I’m missing here? The question requirement seems to ask for the same thing in both scenarios, and I can’t really understand why they both seem to cater it differently.
I will be grateful for an answer!
Best regards.
Discounting the free cash flows at the WACC gives the total value of the firm (equity plus debt).
Discounting the free cash flows to equity at the cost of equity gives the value of the equity.
As to which approach to use depends on a combination of any instruction in the requirements and on the information available in the question.
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