Hi,

Can anyone explain, why in some valuation models the sum of DFCF is divided by (1+ WACC)^(1/2). The reason of doing so is to eliminate the drawbacks of NPV assumption model, where cash flows occurring at the end of each period?

Question

Hi,

Can anyone explain, why in some valuation models the sum of DFCF is divided by (1+ WACC)^(1/2).  The reason of doing so is to eliminate the drawbacks of NPV assumption model, where cash flows occurring at the end of each period?

anonymous · Answer

Just moves all cash flows to midyear cash flows... Nothing to do with NPV model but more a reaction to assuming that all cash flows occur at the end of each year rather than over the course of the year.

anonymous · Answer

Thank you Aswath