Source: https://guthlabs.ai/docs/instruments/dcf-valuation-simple/

instrument / verified-with-binding-errata

# DCF Valuation (Simple)

The current ledger marks this instrument verified with errata that must be applied at binding time.

Status: **VERIFIED_WITH_ERRATA**Lifecycle: **verified-with-binding-errata**

## Inspectable records

[01**Overview**Purpose and lifecycle](<https://guthlabs.ai/docs/instruments/dcf-valuation-simple/>)[02**Mechanism**Method and assumptions](<https://guthlabs.ai/docs/instruments/dcf-valuation-simple/mechanism/>)[03**Implementation**Binding and validation](<https://guthlabs.ai/docs/instruments/dcf-valuation-simple/implementation/>)[04**Qualification**Evidence and errata](<https://guthlabs.ai/docs/instruments/dcf-valuation-simple/qualification/>)

## Ledger state

The current ledger marks this instrument verified with errata that must be applied at binding time.

**Area**: Finance, Economics & Business (educational only — never individualized investment, tax, or legal advice)

**Tranche**: tranche-4

**Evidence ID**: t4-200

**Ledger rows**: 1

No ledger note is attached.

## Review findings

The honest-label language is appropriate and should remain visible: this is a highly sensitive educational model, not a valuation opinion. NEEDS_REVIEW is required because the exact FCF definition, enterprise-to-equity bridge, per-share formula, share-count convention, and terminal-cash-flow timing are not fully specified.

### Formula and scope findings

- The stated formula is standard for enterprise value only when FCF means unlevered free cash flow to the firm (FCFF) and WACC is the matching discount rate.

- The computes field claims enterprise/equity value, but equity value requires adjustments such as subtracting debt and adding cash; those inputs and formulas are missing.

- Per-share value is listed as an output, but its formula and required shares-outstanding input are missing. If shares are supplied, the standard formula is equity value divided by diluted shares outstanding, not automatically enterprise value divided by shares.

- The terminal-value formula assumes FCF_n is a normalized sustainable final-year cash flow, cash flows occur at each year-end, and terminal value is realized at the end of year n. Those conventions are not stated.

### Unit assumptions

- WACC and terminal growth rate are annual decimal rates, so 10% must be entered as 0.10 and both rates must use compatible compounding conventions.

- FCF values must use one consistent currency and scale; the test vectors below use USD millions.

- Shares outstanding must use a consistent share scale; when FCF and enterprise value are in USD millions, shares in millions produce per-share values in USD.

- The terminal growth rate is assumed to be perpetuity growth and must be strictly less than WACC.

- Discounting assumes the first projected FCF occurs one year from the valuation date and the terminal value is discounted for n periods.

## Boundary hardening

**BREAK_CLAIMED** · SELF_FLAGGED

The model has undefined outputs at WACC equal to terminal growth and at WACC equal to -1, and its terminal-value branch becomes invalid when terminal growth is greater than or equal to WACC. FCF sign conventions can also materially change the result if left unspecified.

## Errata and corrections

### Tranche errata

**enterprise_value/per_share** · vector 1

2000 / 20

2090.91 / 20.91

terminal value omitted (1+g) growth — contradicts her own v3 which applies it (Gordon)

## Inspectable example

4 review vectors are recorded. One source-bound sample is shown below.

````
{
  "inputs": {
    "fcf_projections": [
      100,
      110
    ],
    "wacc": 0.1,
    "terminal_growth_rate": 0.05,
    "shares_outstanding_millions": 100,
    "fcf_unit": "USD millions",
    "n": 2
  },
  "expected_outputs": {
    "enterprise_value_usd_millions": 2000,
    "per_share_value_usd": 20
  },
  "working": "TV = 110 × (1 + 0.05) / (0.10 − 0.05) = 115.5 / 0.05 = 2310. PV(FCF1) = 100 / 1.10 = 90.9090909. PV(FCF2) = 110 / 1.10² = 110 / 1.21 = 90.9090909. PV(TV) = 2310 / 1.10² = 2310 / 1.21 = 1909.0909091. EV = 90.9090909 + 90.9090909 + 1909.0909091 = 2000. Per-share value = 2000 / 100 = 20."
}
````

## Related workflows

[Investor's Valuation Benchvalue #1](<https://guthlabs.ai/docs/instrument-workflows/valuation-bench/>)

## Sources and evidence

These pointers bind the page to evidence. They do not grant authority or collapse verification into deployment.

- `VERIFIED_LEDGER.json · VERIFIED_WITH_ERRATA`

- `evidence-tranche4/tranche4-results.json`

- `BOUNDARY_HAZARD_CATALOG.json`