FCFF Valuation Approach

The FCFF valuation approach estimates the value of the firm as the present value of future FCFF discounted at the weighted average cost of capital.

Because FCFF is the cash flow available to all suppliers of capital, using WACC to discount FCFF gives the total value of all of the firm’s capital.

The value of equity is the value of the firm minus the market value of its debt:

Equity value = Firm value – Market value of debt  

Dividing the total value of equity by the number of outstanding shares gives the value per share.

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