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Chapter 13
Cash based methods
2.1 The free cash flow (FCF) method – overview
Value of the business = forecast FCF, discounted at the WACC
2.2 Step by step method
Forecast FCF
After ‘planning horizon’ => find
During ‘planning horizon’
=> discount FCF using value by making alternative
WACC assumptions about time
horizons and / or growth rate
Add short term investments
VALUE OF THE
BUSINESS
Value of debt Value of equity
Illustrations and further practice
Now try Illustration 1 in Chapter 13
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