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Pascal PIERRE edited section_Building_a_Profitability_Valuation__.tex
almost 8 years ago
Commit id: 915637b7f709669867bf195133a4afc470b8f3d9
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\section{Building a Profitability-Valuation framework mounted on a Discounted Cash-Flow model}
\subsection{Identifying the main components of the model}
We will be using the Discounted Free Cash-Flow to Firm model (/texit{FCFF} hereafter). As its name suggests, this model effectively discounts all the cash-flows that are/can be distributed to the shareholders and debt holders of the firm. Applying (1) to the firm, we get :
$EV_{t}=\displaystyle\sum_{i=t+1}^{t+K}\frac{FCFF_i}{(1+R)^i}+EV_{t+K}$ \begin{equation}
EV_{t}=\displaystyle\sum_{i=t+1}^{t+K}\frac{FCFF_i}{(1+R)^i}+EV_{t+K}
\end{equation}
where $EV_{t}$ is the enterprise value of the value of the firm receiving the free cash-flows ($FCFF$).