The present value of all cash flows in a DCF equals what?

• A. Equity Value
• B. Enterprise Value
• C. Net Present Value
• D. Market Capitalization

Answer: (B)

In a DCF, you value the entire business by discounting cash flows that are available to all capital providers, i.e., the free cash flow to the firm. These cash flows are discounted using the weighted average cost of capital, and their present value equals the enterprise value—the total value of the company’s core operations regardless of how it’s financed. Equity value would come from adjusting enterprise value for net debt (or by discounting free cash flow to equity at the cost of equity), while market capitalization is simply the market’s price for equity, and net present value is a project-specific metric separate from valuing the whole firm. So the PV of all cash flows in a standard DCF is the enterprise value.