Valuation of the Andean company through discounted free cash flow and capital

Abstract

This article aims to determine the economic value of the Andina company by applying the discounted cash flow (DCF) method, specifically using free cash flow without debt and equity cash flow. The methodology is quantitative and analytical, based on projected cash flows for the period 2024–2028, with the application of different discount rates: the weighted average cost of capital (WACC) for free cash flow, and the required rate of return (Ke) for equity cash flow, calculated using the CAPM model. Additionally, residual value was incorporated as a growing perpetuity, and sensitivity and scenario analyses were performed to evaluate the behavior of the enterprise value in response to variations in the main financial variables. The results obtained indicate that, using the free cash flow method without debt, the value of the Andina company amounts to Bs 24,975 thousand Bolivianos, while, using the equity cash flow method, a value of Bs 16,808 thousand Bolivianos is obtained. Scenario analyses reveal that the enterprise value is highly sensitive to variations in the growth rate, the cost of capital, and the return required by shareholders. It is concluded that the discounted cash flow method constitutes a robust and well-founded tool for business valuation.