stockAnalyst (version 1.0.1)

equityValueGivenDebtMV: Calculates the amount of estimated total equity value by deducting the given Market Value of Debt from Value of firm based on Discounted FCFF.

Description

The FCFF valuation approach estimates the value of the firm as the present value of future FCFF discounted at the weighted average cost of capital. Because FCFF is the cash flow available to all suppliers of capital, using WACC to discount FCFF gives the total value of all of the firm’s capital. The value of equity is the value of the firm minus the market value of its debt (Jerald E. Pinto, 2020).

Usage

equityValueGivenDebtMV(FCFF, t, WACC, debtMV)

Value

Input values to three arguments FCFF, t,debtMV, and WACC.

Arguments

FCFF

A vector.

t

A vector.

WACC

A number.

debtMV

A number

Author

MaheshP Kumar,

Details

According to information provided by Jerald E. Pinto (2020), the method equityValueGivenDebtMV is developed to compute estimated total equity value by deducting the given Market Value of Debt from Discounted Value of FCFF for the values passed to its four arguments. Here, FCFF is given amount of future Free Cash Flow to the Firm (FCFF) in millions of dollars. For example, a value of 0.04 means 0.4 millions or 400,000 dollars , t is a vector of number of years ranging from 1 to any specified number of years for which FCFF is to be discounted, WACC is Weighted Average Cost of Capital and debtMV is Market Value of the debt. Values used for FCFF, Market Value of Debt and the output obtained are in millions of dollars. An output of 1.00494 means 1,004,940 dollars.

References

Pinto, J. E. (2020). Equity Asset Valuation (4th ed.). Wiley Professional Development (P&T). https://bookshelf.vitalsource.com/books/9781119628194

Examples

equityValueGivenDebtMV(FCFF=c(0.4,0.4,0.4,0.4),t=c(1,2,3,4),WACC=0.12,debtMV= 0.21)