Principles of Corporate Finance

FCF and PV

Valuing a Business

HH rHH

PV

r

FCF

r

FCF

r

PV FCF
( 1 ) ( 1 )

...

( 1 ) ( 1 )^2

11 2

+

+

+

+ +

+

+

+

=

PV (free cash flows) PV (horizon value)