3. Fundamentals of the free cash flow corporate valuation model
Several methods can be used to compute the intrinsic value of a share of a company's common stock. One method uses the free cash flow (FCF)
valuation model, while the another method uses the dividend discount model.
The FCF valuation model computes a firm's $\boxed{value}$ value—also called its $\boxed{firm value}$ value—as the sum of the value of its operating activities ($V_{op}$) and the value of firm's nonoperating $\boxed{assets}$, where:
• $V_{op}$ is computed by $\boxed{discounting}$ the firm's expected future free cash flows by its weighted average cost of capital.
• A firm's nonoperating assets include its highly marketable $\boxed{securities}$ in which a firm invests its temporarily available excess cash, and its investments in other businesses.
