Levered DCF defines value to:

Levered DCF defines value to:

• A. Debt providers
• B. Equity owners
• C. All providers of capital
• D. Lenders

Answer: (B)

Levered DCF values the cash flows that remain for shareholders after debt payments are made, so it defines the equity value. It uses the cost of equity as the discount rate, meaning the present value represents what equity holders are entitled to. In contrast, unlevered DCF values the firm’s cash flows before debt payments and uses the weighted average cost of capital, giving enterprise value—the value to all providers of capital. Since levered DCF focuses on residual cash flows after debt service, the outcome is the value to equity owners.

Levered DCF values the cash flows that remain for shareholders after debt payments are made, so it defines the equity value. It uses the cost of equity as the discount rate, meaning the present value represents what equity holders are entitled to. In contrast, unlevered DCF values the firm’s cash flows before debt payments and uses the weighted average cost of capital, giving enterprise value—the value to all providers of capital. Since levered DCF focuses on residual cash flows after debt service, the outcome is the value to equity owners.