In this work we show a simplified financial planning model. In reality, financial planning models are huge and cumbersome. This is a very simplified model compared with what is found in practice.We present some basic principles for constructing the financial statements needed for valuation. We...

In this teaching note we show that using the findings of Tham and Velez-Pareja 2002, for finite cash flows, Ke and hence WACC depend on the discount rate that is used to value the tax shield, TS and as expected, Ke and WACC are not constant with Kd as the discount rate for the tax shield, even...

In this teaching note the reader finds a simplified financial model. In reality, financial models are huge and cumbersome. What we present is very simplified model in comparison to what is found in practice. We indicate the formulas that have to be utilized in the construction of the financial...

Although we know there exists a simple approach to solve the circularity between value and the discount rate, known as the Adjusted Present Value proposed by Myers, 1974, it seems that practitioners still rely on the traditional Weighted Average Cost of Capital, WACC approach of weighting the...

Based on a theoretically correct model we examine the value the market assigns to different components of the cash flow to equity including potential" dividends. We study publicly traded firms from five Latin American countries: Argentina, Brazil, Chile, Mexico and Peru during the period...

Since the Modigliani and Miller 1958 seminal paper, there has been a problem posed by the fact that the discount rate to value cash flows depends on the value of thesecash flows. This gives raise to the circularity problem.In this paper we propose an analytical solution to this circularity...

We discuss some ideas useful when forecasting financial statements that are based on historical data.The chapter is organized as follows: First we discuss the relevance of prospective analysis for non traded firms. In a second section we a basic reviews of subjects that will be needed for...

It is widely known that if the leverage is constant over time, then the cost of equity and the Weighted Average Cost of Capital (WACC) for the free cash flow, FCF, is constant over time. In other words, it is inappropriate to use a constant WACCFCF to discount the free cash flow (FCF) if the...

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,...

I present a set of conditions for defining risky debt associated to cash flow and not to accounting earnings. I explain why realization of tax shields for finite cash flows in any period of time t are correlated to Earnings before Interest and Taxes and are not correlated to interest expenses at...