T11 WACCt where

CF to Firmt = Expected Cash flow to Firm in period t WACC = Weighted Average Cost of Capital While the two approaches use different definitions of cash flow and discount rates, they will yield consistent estimates of value as long as the same set of assumptions is applied for both. It is important to avoid mismatching cash flows and discount rates, since discounting cash flows to equity at the weighted average cost of capital will lead to an upwardly biased estimate of the value of equity, while discounting cash flows to the firm at the cost of equity will yield a downward biased estimate of the value of the firm.

Lessons From The Intelligent Investor

Lessons From The Intelligent Investor

If you're like a lot of people watching the recession unfold, you have likely started to look at your finances under a microscope. Perhaps you have started saving the annual savings rate by people has started to recover a bit.

Get My Free Ebook


Post a comment