R/19_firmValueConstantG.R

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, \code{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).
#'@details
#'According to information provided by Jerald E. Pinto (2020), the method \code{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, \code{FCFF0} is given amount of future Free Cash Flow to the Firm in millions of dollars, \code{g} is constant rate of growth under single stage constant growth model, and \code{WACC} is Weighted Average Cost of Capital.
#'@param FCFF0 A number.
#'@param g A number.
#'@param WACC A number.
#'@return Input values to three arguments  \code{FCFF0} \code{g}, and \code{WACC} .
#'@author MaheshP Kumar, \email{maheshparamjitkumar@@gmail.com}
#'@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)
#'@export
firmValueConstantG<-function (FCFF0,g,WACC)
{
   firmVal <- FCFF0*(1+g)/(WACC-g)
  ( firmVal = round( firmVal, digits=2))
}