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,...

In a world with taxes, there is a small discrepancy between the deflated WACC WACCDef and the real wacc. This is due to the (1-T) term that is in the standard expression for the WACC applied to the Free Cash Flow (FCF). We compare different approaches for valuing nominal and real cash flows with...

We present the derivation of cost of capital under the assumption of risky tax shields discounted with the cost of levered equity. We show that the formulation is consistent and is derived from basic financial principles. This formulation is valid for finite cash flows and non growing...

Se presenta la derivación de costo de capital bajo la premisa del ahorro deimpuestos de riesgo descuento con el costo de capital apalancado. Se demuestraque la formulación es coherente y se deriva de los principios financieros básicos. Esta formulación es válida para los flujos de caja...

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...

Practitioners and some academics use potential dividends rather than actual payments toshareholders 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...

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...

Most popular corporate finance textbooks and practitioners present the WeightedAverage Cost of Capital WACC calculation as independent from the Free Cash Flow.It is a common use that practitioners calculate a WACC a priori and use it independentlyfrom the firm value (this is, from FCF). In this...

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...

Usualmente los textos de finanzas presentan por lo menos un capítulo sobre análisis financiero, entendido como análisis de razones financieras. Se enseñan muchos cursos en análisis financiero y se gasta una enorme cantidad de tiempo en cómo calcular las razones financieras basados en...