You are valuing a firm using a two-stage DCF valuation model. The WACC for the firm is 15%. The current (year 0) NOPAT is $100,000 and the current invested capital is $700,000. The firm is currently reinvesting 30% of its NOPAT.The high growth stage is expected to last one year (year 1). Starting in year 2, the firm will enter a steady state (there is no transition stage).In the high growth stage (i.e., in year 1), NOPAT grows by 20% and the firm reinvests 30%. Starting in year 2, the firm enters the steady state, NOPAT grows by 9% per year and the firm reinvests 60%.
Compute the total enterprise value using both the FCFF model and the discounted EVA model. Do you get the same estimate of value using both approaches? If not, can you explain the difference?