Module II· DCF — Mechanics & FCFBasic
Question
Explain the three steps of a DCF valuation.
Answer
Three steps
- Project the FCFs: typically 5–10 years.
- Terminal Value: Gordon Growth or exit multiple.
- Discount at the WACC back to t=0; the sum gives the Enterprise Value.
From enterprise to equity value
```
EqV = EV − Net Debt − Minorities + Associates + Excess Cash
```
Example — a middle-market company
Inputs:
- EV: $500m
- Net Debt: $100m
- Minorities, Associates, Excess Cash: 0
Calculation:
```
EqV = EV − Net Debt = $500 − $100 = $400m
```