In cash flow valuation, on grounds of simplicity, it is common to assume that the leverage is constant over time. With constant leverage, the return to levered equity is constant and consequently, the Weighted Average Cost of Capital (WACC) applied to the Free Cash Flow is constant. However,...

Este capítulo se dedica a la definición y el cálculo del valor terminal que es el valor de los flujos de caja que se generan en la firma o proyecto más allá del último período de la proyección. Se consideran situaciones con y sin crecimiento real y con y sin inflación. Se derivan las...

In “Consistency in Chocolate: A Fresh Look at Copeland’s Hershey Foods & Co Case” we showed the inconsistencies regarding the assumption of constant leverage and the inconsistency in the values for equity calculated with different approaches. In this second part we show the differences in...

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...

In this note we correct the findings reported by Vélez-Pareja and Tham (2005). Although perpetuities are somewhat artificial in the sense that in practice they do not exist, they are relevant because no matter how detailed and complex a forecasted financial plan for a firm or project could be,...

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 withadjustments in the calculation of the proper Weighted Average Cost of Capital, WACC, in order to grant that the model with zero...

In this note we correct the findings reported by Vélez-Pareja and Tham (2005). Although perpetuities are somewhat artificial in the sense that in practice they do not exist, they are relevant because no matter how detailed and complex a forecasted financial plan for a firm or project could be,...

We examine the proper valuation of perpetuities without real growth. The case of a pure" non growing perpetuity (zero real growth and zero inflation) is of academic interest but in practice it might be difficult to find. The findings contradict what is generally accepted in the literature. In...

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...

Using the model proposed by Velez-Pareja (2006) and assuming straight line depreciation we examine the conditions to assure a constant growth rate in a growingperpetuity. Our findings are that in practical terms for a growing perpetuity there are two options: either depreciation life is one year...