Financial Modeling
Build a DCF
How much of a company’s value sits beyond the forecast?
Practise build a DCF with a worked example and a short check.
Forecast free cash flow, discount it, then estimate what remains beyond the explicit forecast.
EV = Σ FCFFₜ / (1 + WACC)ᵗ + [FCFFₙ × (1 + g) / (WACC − g)] / (1 + WACC)ⁿ
FCFF is cash flow available to all capital providers, WACC is the discount rate and g is perpetual growth. Discount each forecast cash flow and the terminal value separately. With level cash flow forever, $10m ÷ 10% = $100m.
With $10m cash flow in year one, WACC 10% and zero growth forever, EV is $100m.
FCFF is cash flow available to all capital providers, WACC is the discount rate and g is perpetual growth. Discount each forecast cash flow and the terminal value separately. With level cash flow forever, $10m ÷ 10% = $100m.
Which input pair makes the perpetual terminal value undefined?