DCF & WACC
Should an unlevered DCF and a levered (FCFE) DCF give the same equity value? Why do they diverge in practice?
Model answer
In theory, yes: enterprise value from unlevered FCF at WACC, minus net debt, should equal the PV of FCFE at the cost of equity - both describe the same firm, and Modigliani-Miller logic guarantees…
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