equityValueConstantG: Calculates the amount of estimated total equity value by...

In stockAnalyst: Equity Valuation using Methods of Fundamental Analysis

Calculates the amount of estimated total equity value by deducting the given Market Value of Debt from Value of firm based on single stage constant growth of FCFF.

Description

Amount of estimated total equity value is obtained by deducting the given Market Value of Debt from Value of firm based on single stage constant growth of FCFF. Consider that FCFF grows at a constant rate, g, such that FCFF in any period is equal to FCFF in the previous period multiplied by (1 + g). This means that this method is based on single stage constant growth model. So, FCFFt = FCFF(t–1) times (1 + g). If FCFF grows at a constant rate, firm value(FCFF1) is FCFF0 times (1+g) divided by (WACC-g).

Usage

equityValueConstantG(FCFF0, g, WACC, debtVal)

Arguments

FCFF0	A number.
g	A number.
WACC	A number.
debtVal	A number.

Details

According to information provided by Jerald E. Pinto (2020), the method equityValueConstantG is developed to compute estimated value of the firm if FCFF is growing at a constant rate for the values passed to its three arguments. Here, FCFF0 is given amount of future Free Cash Flow to the Firm in millions of dollars, g is constant rate of growth under single stage constant growth model, and WACC is Weighted Average Cost of Capital.

Value

Input values to tfour arguments FCFF0 g, and WACC .

Author(s)

MaheshP Kumar, [e-mail]

References

Pinto, J. E. (2020). Equity Asset Valuation (4th ed.). Wiley Professional Development (P&T). https://bookshelf.vitalsource.com/books/9781119628194

Examples

equityValueConstantG(FCFF0=1.8,g=0.08,WACC=0.12,debtVal= 18 )
equityValueConstantG(FCFF0=700,g=0.05,WACC=0.102,debtVal=2200)

stockAnalyst documentation built on Sept. 13, 2022, 5:07 p.m.