Accountancy, asked by cristina1017, 1 year ago

How to calculate enterprise value if we have free cash flow and will remain constant forever and wacc answer by .Com?

Answers

Answered by pintusingh41122
0

Answer:

When there is free cash flow and that will be constant for forever, then it will be in the form of perpetuity.

Explanation:

The formula of perpetuity is:

= Constant Annual Amount /  Discount Rate

In the question, the free cash flow amount will be the constant annual amount and WACC is the discount rate.

For example,

Assuming a firm has no debt, amount of free cash flow per year is Rs 30,000 and WACC is 4%. Calculate the enterprise value.

Enterprise value will be computed as:

= Constant Annual Amount /  Discount Rate

= Rs 30,000 / 4%

= Rs 750,000

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