Which method results directly in equity value: unlevered DCF or levered DCF?

The levered DCF specifically focuses on the cash flows available to equity holders after accounting for interest expenses and debt repayment. This method directly incorporates the effects of leverage on the company's cash flow, thereby providing a valuation that ultimately reflects the equity value of the business. This is done by discounting the free cash flows available to equity investors using the cost of equity, which accounts for the risk profile associated with equity investment.

In contrast, an unlevered DCF analysis evaluates the enterprise value by assessing the cash flows generated by the business before any debt obligations are factored in. It considers free cash flows for the entire business, which includes both equity and debt holders. As such, the unlevered DCF does not yield an equity value directly; it provides an enterprise value that must then be adjusted by subtracting net debt to arrive at equity value.

This distinction is crucial for financial analysis and valuation, particularly in how different capital structures can impact a company's overall valuation to shareholders.