firmValueConstantG: Calculates the estimated value of the firm when FCFF is...

In stockAnalyst: Equity Valuation using Methods of Fundamental Analysis

Calculates the estimated value of the firm when FCFF is growing at a constant rate.

Description

Assume that free cash flow to the firm (FCFF) grows at a constant rate, g, in such a way that FCFF in any period is equal to FCFF of the previous period multiplied by (1 + g). This means this method is based on single stage constant growth model. So, FCFFt is equal to FCFF of period (t–1) multiplied with (1 + g). If FCFF grows at a constant rate, firm value (FCFF1) is equal to FCFF0*(1+g)/(WACC-g).

Usage

firmValueConstantG(FCFF0, g, WACC)

Arguments

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

Details

According to information provided by Jerald E. Pinto (2020), the method firmValueConstantG is developed to compute estimated value of the firm when 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 three 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

firmValueConstantG(FCFF0=1.8,g=0.08,WACC=0.12)
firmValueConstantG(FCFF0=700,g=0.05,WACC=0.102)

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