firmValueConstantG: Calculates the estimated value of the firm when FCFF is growing at a constant rate.
Description
Assume that free cash flow to the firm (FCFF) grows at a constant rate, g, in such a way that FCFF in any period is equal to FCFF of the previous period multiplied by (1 + g). This means this method is based on single stage constant growth model. So, FCFFt is equal to FCFF of period (t–1) multiplied with (1 + g). If FCFF grows at a constant rate, firm value (FCFF1) is equal to FCFF0*(1+g)/(WACC-g).
According to information provided by Jerald E. Pinto (2020), the method firmValueConstantG is developed to compute estimated value of the firm when FCFF is growing at a constant rate for the values passed to its three arguments. Here, FCFF0 is given amount of future Free Cash Flow to the Firm in millions of dollars, g is constant rate of growth under single stage constant growth model, and WACC is Weighted Average Cost of Capital.
References
Pinto, J. E. (2020). Equity Asset Valuation (4th ed.). Wiley Professional Development (P&T). https://bookshelf.vitalsource.com/books/9781119628194