DCF & WACC
Why do you use unlevered free cash flow in a DCF and how do you calculate it?
Model answer
Unlevered FCF excludes financing effects, so it's available to all capital providers and pairs with WACC and enterprise value. Calc: EBIT x (1 - tax rate) + D&A - capex - increase in net working capital. Start from EBIT, not net income, to strip out interest.
This is one of the 20 free cards. Sign up free for 10 reps a day from the full 1,500+ bank.
More from DCF & WACC
- Walk me through a DCF.
- 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?
- A DCF gives a value that seems too high. Which assumptions would you check first?