Unlevered DCF aims to value the operations for which providers?

Unlevered DCF aims to value the operations for which providers?

• A. Value to all providers of capital
• B. Value to equity owners
• C. Value to debt holders
• D. Value to management

Answer: (A)

Unlevered DCF values the firm’s operating assets as a whole, without considering how the company is financed. It uses free cash flow to the firm (cash flow after taxes and reinvestment, before debt payments) and discounts it at the unlevered cost of capital. This approach yields the enterprise value—the total value of the operations available to all providers of capital, including both debt and equity. If you were valuing just equity, you’d use levered cash flows to equity and a levered discount rate, which is not what unlevered DCF does. Debt holders or management aren’t the target of this method in the same way, since it focuses on the firm’s operating value independent of financing.

Unlevered DCF values the firm’s operating assets as a whole, without considering how the company is financed. It uses free cash flow to the firm (cash flow after taxes and reinvestment, before debt payments) and discounts it at the unlevered cost of capital. This approach yields the enterprise value—the total value of the operations available to all providers of capital, including both debt and equity. If you were valuing just equity, you’d use levered cash flows to equity and a levered discount rate, which is not what unlevered DCF does. Debt holders or management aren’t the target of this method in the same way, since it focuses on the firm’s operating value independent of financing.