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How do you calculate DCF using WACC?

by Lennon Wade

How do you calculate DCF using WACC?

The formula for WACC is (Rd*Wd) + (Rs*We). Therefore: WACC = (5.34% x 11.68%) + (11.01% x 88.32%) = 0.62% + 9.72% = 10.34%. Now, we are up to our last rate to determine before proceeding with our DCF valuation.

How do you calculate DCF enterprise value?

Businesses calculate enterprise value by adding up the market capitalization, or market cap, plus all of the debts in the company. The calculation for equity value adds enterprise value to redundant assets. Then, it subtracts the debt net of cash available.

What is discount factor formula?

The general discount factor formula is: Discount Factor = 1 / (1 * (1 + Discount Rate)Period Number) To use this formula, you’ll need to find out the periodic interest rate or discount rate. This can easily be determined by dividing the annual discount factor interest rate by the total number of payments per year.

What is enterprise value formula?

The simple formula for enterprise value is: EV = Market Capitalization + Market Value of Debt – Cash and Equivalents. The extended formula is: EV = Common Shares + Preferred Shares + Market Value of Debt + Minority Interest – Cash and Equivalents.

How to make a DCF?

Forecasting unlevered free cash flows. Step 1 is to forecast the cash flows a company generates from its core operations after accounting for all operating expenses and investments.

  • Calculating terminal value. You can’t keep forecasting cash flows forever.
  • Discounting the cash flows to the present at the weighted average cost of capital.
  • Add the value of non-operating assets to the present value of unlevered free cash flows.
  • Subtract debt and other non-equity claims. The ultimate goal of the DCF is to get at what belongs to the equity owners (equity value).
  • Divide the equity value by the shares outstanding. The equity value tells us what the total value to owners is. But what is the value of each share?

    • What is the formula for calculating free cash flow?

    How it works (Example): The formula for free cash flow is: FCF = Operating Cash Flow – Capital Expenditures. The data needed to calculate a company’s free cash flow is usually on its cash flow statement.

    What is a DCF model?

    A discounted cash flow model (“DCF model”) is a type of financial model that values a company by forecasting its’ cash flows and discounting the cash flows to arrive at a current, present value. The DCF has the distinction of being both widely used in academia and in practice.

    How to discount cash flows?

    1) Set up your equation. The discount rate must be represent as a decimal rather than by a percentage. This is done by dividing the discount rate by 100. 2) Add up all discounted cash flows. The total value of discounted cash flows for an investment is calculated as the present values of each cash flow. 3) Arrive at the discounted value. Solve your equation to get your total discounted value. The result will be the present value of your future cash flows. 4) Adjust your discount rate. In some cases it may be necessary to change the discount rate used to account for changes to expectations, risk, or taxes.