5.1. Valuing a company or project through the FCFE

Valuing a company through FCFE uses the same principles as with the FCFF. The difference lies in the type of cash flows and in the discount rate that has to be used. The present value of the FCFE uses the cost of equity as the discount factor.

  • \(Operational\ equity\ value=\sum_{i=1}^{\infty}\frac{{FCFE}_t}{(1+{r_e)}^t}\)

Based on this method, one can adopt the following approaches: