In the Weighted Average Cost of Capital (WACC) applied to the free cash flow (FCF), we assume that the cost of debt is the market, unsubsidized rate. With debt at the market rate and perfect capital markets, debt only creates value in the presence of taxes through the tax shield. In some cases,...

Debt financing with subsidizes interest rate has a multidimensional impact on the firm. Value of the levered equity, value of the debt and overall firm value will be different of those values with debt financing at market rate. Subsidized interest rate on debt does not create any additional cash...

Debt financing with subsidizes interest rate has a multidimensional impact on the firm. Value of the levered equity, value of the debt and overall firm value will be different of those values with debt financing at market rate. Subsidized interest rate on debt does not create any additional cash...

The choice of an appropriate discount rate is of major importance in cost benefit analysis both, at the private and at the social levels. The theories that rationalize the NPV criterion also identify the appropriate rate. However, the question remains as to what should be done when the...

A typical approach for valuing finite cash flows is to assume that leverage is constant (usually as target leverage) and the cost of equity, Ke and the Weighted Average Cost of Capital, WACC are also assumed to be constant. For cash flows in perpetuity, and with the cost of debt, Kd as the...

En este trabajo explicamos el uso apropiado de perpetuidades y el cálculo de su valor. Consideramos dos casos: calcular el valor en el período cero cuando la perpetuidad comienza con un flujo de caja dado en el período 1 y cuando se conoce el flujo de caja en el período cero y crece en el...

Esta nota pedagógica ilustra el cálculo de la elasticidad precio-demanda y su aplicación en la proyección de estados financieros.

Al calcular los ahorros en impuestos, AI, nos enfrentamos a una extraña mezcla de causación contable y de valor de mercado cuando se trata de incluir el AI en el cálculo del Costo promedio ponderado de capital, CPPC (WACC por sus siglas en inglés) o el costo del patrimonio con deuda, Ke. Las...

The typical assumption about cash flows in perpetuity is not appropriate in practical project appraisal because the length of project life is always finite. In this paper, I present and discuss the calculation of multiperiod financial discount rates for a project with a finite life and no...

When calculating Tax Savings, TS, we are confronted with a strange mix of accounting accrual and market value when involving TS in the calculation of the Weighted Average Cost of Capital, WACC, or the Cost of Equity, Ke. Firms earn the right to TS once they accrue the interest expense and they...