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Enterprise value
Free cash flows,
Present Value
discounted at WACC
Assets Liabilities
Operating current assets Debt - cash & Mkt. securities
- Operating current liabilities = Net debt
= Net working capital Enterprise value =
Net fixed assets Equity =PV(FCFs discounted
Goodwill at WACC)
Enterprise Value Enterprise Value
FCFt
Enterprise value
1 WACC
t
t 1
Discount only Terminal value
limited number of is PV of FCFs,
projected FCFs years N+1, N+2,
...
FCFN * 1 g
Terminal value
WACC g
where
g Long-term FCF growth rate
Each FCF occurs approximate in mid-year
This is reflected in discount factor
t 1 1 WACC 1 WACC
t
Adjustment factor
for mid-year
FCF
Plug = cash asks: Can operations be supported with these Debt/Stock financing
assumptions?
Answer: Yes, if cash > 0
Then Plug = Debt means: All available extra cash used to pay down debt.
Accumulated Depreciation
Based on FA at cost
22
OTHER CIRCULARITIES?
Income statement
Balance sheet
Interest:
Depends on Debt/Cash
Cash Debt
Accumulated
retained
Retained earnings
26