DCF & WACC
Two companies have identical projected free cash flows. One is a stable utility, the other a volatile tech firm. Which has the higher DCF value and why?
Model answer
The utility. In a DCF, risk enters through the discount rate, not by changing the expected cash flows: the safer business has a lower beta, a lower cost of equity, cheaper debt, and therefore a lower…
The full, human-reviewed answer is in the bank.
Sign up free and Daily 10 serves you 10 questions a day from all 1,500+ — or go Pro for unlimited reps.
More from DCF & WACC
- Walk me through a DCF.
- Why do you use unlevered free cash flow in a DCF and how do you calculate it?
- What is WACC and how do you calculate it?
- What are the two ways to calculate terminal value, and how do they differ?
- What discount rate do you use if you're discounting levered free cash flow?
- Two identical companies, one has more debt. Which has the higher WACC?