5.1.3. FCFE for multiple periods and a restricted residual value
As in similar approach used on the FCFF, it is also possible restrict the terminal value by deducting a second perpetuity.
- \(Operational\ equity\ value=FCFE\ NPV+Residual\ value\)
- \(FCFE\ NPV=\frac{{FCFE}_t}{{(1+r_e)}^t}+\frac{{FCFE}_{t+1}}{{(1+r_e)}^{t+1}}+\ldots+\frac{{FCFE}_n}{{(1+r_e)}^n}\)
- \(Residual\ value=\frac{{FCFE}_{n+1}}{\left(r_e-g_{FCFE}\right)}\frac{1}{\left(1+r_e\right)^n}-\frac{{FCFF}_{n+x}}{\left(r_e-g_{FCFE}\right)}\frac{1}{\left(1+r_e\right)^{n+x}}\)
Next Section: 5.1.4. Equity value