This open-access textbook is the second, updated and extended edition of a comprehensive treatment of firm valuation based on discounted cash flow (DCF) analysis. While DCF is the standard framework for valuing firms, it encompasses several approaches, including the entity and equity approaches, as well as concepts such as adjusted present value (APV) and the weighted average cost of capital (WACC). This book develops these methods within a unified asset-pricing framework and explains their underlying assumptions, relationships, and fields of application.

The book combines the practitioner-oriented concept of the cost of capital with modern no-arbitrage asset pricing. It presents the theoretical foundations of DCF valuation, analyzes the effects of financing and taxation, and discusses the circumstances under which alternative valuation methods are equivalent and when they are not. Throughout, the emphasis is on developing a rigorous yet accessible understanding of firm valuation.

The book is intended for undergraduate and graduate students of economics, particularly those specializing in finance, as well as researchers, professionals, and practitioners working in corporate finance, valuation, and related fields.

Lutz Kruschwitz is a Professor emeritus at the Chair of Banking and Finance, Freie Universität Berlin, Germany. His research interests include investment and valuation theory. He is the author of several bestselling German finance textbooks. He received an honorary doctorate from the University of Tübingen, Germany, and is an Honorary Professor at the University of Vienna, Austria.

Andreas Löffler has held the Chair of Banking and Finance at Freie Universität Berlin, Germany, since 2011. He studied Mathematics at Leipzig University, Germany, and at the Academy of Sciences in Berlin. He received his Ph.D. in Mathematics in 1993 and a second Ph.D. in Economics in 1995, both from Leipzig University. In 2000, he was appointed a tenured Professor at Leibniz University Hannover, Germany. In 2006, he moved to Friedrich-Alexander-Universität Erlangen-Nürnberg, Germany. In 2008, he was appointed Professor of Finance and Investment at Paderborn University.