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