DCF Valuation (Simple) mechanism

Model scope

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.

• 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.

Units and conventions

• 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.

Inspectable vector

One of 4 source-bound review vectors:

{
  "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."
}

Failure boundary

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.

Other records

Sources and evidence

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

• VERIFIED_LEDGER.json
• evidence-tranche4/tranche4-results.json
• BOUNDARY_HAZARD_CATALOG.json