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Estimate of future cash flow

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Remember from our discussion of NPV, that a firm's value is just the sum of the NPV of all its projects. Thus, as with any asset, the firm's value is the PV of all its future cash flow.

With the WACC, we can discount our estimate of future cash flow, which should represent all cash flow (free cash flow, or distributable cash flow). As usual, we would need to apply a terminal valuation at some point.

Once firm value is obtained, we would subtract the market value of the debt to find the equity value. We could then divide by the number of shares outstanding to find a per share price.

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Reference no: EM131190322

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