The objective of this book is to show how to use the free cash flow to equity (FCFE) valuation model to value a real company, specifically, Coca-Cola. The value of a corporation is the discounted present value of FCFE, provided by the company to the shareholders and can be represented by V0 = FCFE1/(k â g), which is anticipated FCFE divided by the required rate of return minus the anticipated growth rate. As shown in Figure 1, the valuation process requires the corporate financial decision maker to determine the future FCFE, the short-term growth rate, the long-term growth rate, and the required rate of return based on market beta.
We use the super-normal growth rate model of valuation. FCFE is equal to net income plus net capital ...
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