Each of the preceding valuation models determined the value of equity indirectly by subtracting debt and other nonequity claims from enterprise value. The equity cash flow model values equity directly by discounting cash flows to equity at the cost of equity, rather than at the weighted average cost of capital. ⁵⁷

Exhibit 6.16 details the cash flow to equity for Home Depot. Cash flow to equity starts with net income. Next, add back noncash expenses, and subtract investments in working capital, fixed assets, and nonoperating assets. Finally, add any increases in debt and other nonequity claims, and subtract decreases in debt and other nonequity claims. Alternatively, you can compute cash flow to equity as dividends plus share repurchases minus new equity issues. The two methods generate identical results.⁵⁸