In this article we use a real life case from an emerging country to illustrate the valuation with discounted cash flow methods, witch include complexities such as unpaid taxes, losses carried forward, foreign exchange debt, presumptive income and inflation adjustments to the Financial...

This article presents a formal derivation of general expressions for cost of equity (Ke) and weighted average cost of capital (WACC) in perpetuities with constant growth, which do not make any assumption on what the proper discount rate is to be applied to the firm's tax shield. The formulas are...

There is a lot of confusion among practitioners about valuing firms and investment projects. At the first sight, the discounting procedure is a simple and routine task which does not involve much effort. But actually even in simple cases accurate valuation requires attention to plenty of...

Practitioners and some academics use potential dividends rather than actual payments to shareholders for valuing a firm’s equity. We underline the differences between the two methods and present some arguments supporting the thesis that firm valuation with potential dividends overstate the...

Classical single-factor comparable company valuation (CCV) like e.g. valuation using the price-earnings ratio is associated with several shortcomings. The two most important are the non-applicability of negative values in the basis of reference and the high requirements to the qualitative...

Although we know there exists a simpleapproach to solve the circularitybetween value and the discount rate,known as the Adjusted Present Valueproposed by Myers, 1974, it seemsthat practitioners still rely on thetraditional Weighted Average Cost ofCapital, WACC approach of weightingthe cost of...

This paper presents an axiomatization of residual income, aka excess profit, and illustrates how it may univocally engenders fixed-income or variable-income assets. In the first part it is shown that, depending on the relations between excess profit and the investor's excess wealth, a...

This paper proposes a new way of decomposing net present values and net final values in periodic shares. Such a decomposition generates a new notion of residual income, radically different from the classical one available in the financial and accounting literature. While the standard residual...

This paper presents a new way of valuing firms and measuring residual income. The method, originally introduced in Magni (2000a, 2000b, 2000c, 2001), is here renamed lost-capital paradigm. In order to enhance comprehension the presentation relies on a very simple numerical example which shows...

This paper deals with the notion of residual income, which may be defined as the surplus profit that residues after a capital charge (opportunity cost) has been covered. While the origins of the notion trace back to the 19th century, in-depth theoretical investigations and widespread real-life...