In the recent writings on valuation, there is no consensus about the correct formulas for calculating the relevant cost of capital in an M & M world. The proliferation of alpha number of methods and omega number of theories for the calculation of the cost of capital is puzzling because in the...

The purpose of this paper is to present a procedure to include the implicit assumptions of Net Present Value NPV in the Internal Rate of Return, IRR, and the profitability index (benefit-cost ratio B/CR). The resulting indicators are the weighted IRR (WIRR) and the expanded B/CR (EB/CR). These...

Llano-Ferro (2009) proposes a solution to avoid 'significant errors' when the Weighted Average Cost of Capital (WACC) obtained by the standard formula leads to significant errors in Net Present Value of the Firm calculations; particularly in those that apply to perpetual cash flow series. In...

Este es un material de estudio (slides, diapositivas) que acompaña al paper Beyond Forecasting Period: The Terminal Value (Mas Alla de Las Proyecciones: El valor Terminal).This is a course material (slides in pdf format) for the paper Beyond Forecasting Period: The Terminal Value (Mas Alla de...

Terminal value is critical for valuation purposes because very often it is a large part of what constitutes the value of a firm. In this short note I answer and clarify some typical questions and myths related to the calculation of terminal value. They are related to the use of non growing...

In this teaching note I list some suggestions that might be useful to take into account when forecasting financial statements departing from historical data. The ideas presented in this note are the result of advising undergraduate and graduate students in the course Econ 195.96/295.96...

In this work we explain the proper use of perpetuities and the value of them. We consider two cases: calculating the value on period zero when the perpetuity starAI with a given cash flow in period 1 and when it starAI from a cash flow in period zero and it grows in period 1 at a given rate (as...

In this work we explain the proper use of perpetuities and the value of them. We consider two cases: calculating the value on period zero when the perpetuity starts with a given cash flow in period 1 and when it starts from a cash flow in period zero and it grows in period 1 at a given rate (as...

The Constant Growth Model attributed to Gordon (the Gordon Model) is one of the most known and popular models in Corporate Finance. In this work we show that even with adjustments in the calculation of the proper Weighted Average Cost of Capital, WACC, in order to grant that the model with zero...