Final answer:
To account for a high debt load in a DCF, you should adjust the projected cash flows by subtracting debt repayments, reflecting the true cash available to capital providers.
Step-by-step explanation:
When accounting for a company with a high debt load in a Discounted Cash Flow (DCF) analysis, the correct approach is to adjust cash flows for debt repayments.
This is because the DCF values a company based on its free cash flows to the firm, which are the cash flows available to all providers of capital after the company has made all the necessary investments in the business and paid off its debts.
You would subtract debt repayments from the projected cash flows before discounting them back to the present value. Incorporating the debt repayment reflects the actual available cash flow that could be distributed to the equity and debt holders.
It is not appropriate to increase the discount rate or decrease the terminal value as these do not directly account for the actual cash outflows of debt repayments.
Excluding debt from valuation is not advisable because it does not offer an accurate representation of the company's financial position.