It is a well known problem the interactions between the market value of cash flows and the discount rate (usually the weighted average cost of capital, WACC) to calculate that value. This is mentioned in almost all textbooks in corporate finance. However, the solution adopted by most authors is...

In a forthcoming paper, Fernandez (2002) claims to derive a formula for the valuation of debt tax shields for firms with cash flows that grow perpetually at a constant rate. We show that his formula is incorrect and provide an example where his valuation would admit arbitrage

When forecasting financial statements care has to be taken to construct a consistent and correct model. This is not an easy task. Even the most experienced expert in modeling makes mistakes. This is especially relevant when we construct a financial model without plugs and without circularity.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 starAI with a given cash flow in period 1 and when it starAI from a cash flow in period zero and it grows in period 1 at a given rate (as...

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...

In this teaching note the reader finds a simplified financial model. In reality, financial 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. The...

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

In this teaching note the reader finds a simplified financial model. In reality, financial 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. The...

Usually financial textbooks present the financial ratio analysis. Many courses are taught in financial analysis and teachers spend lot of efforts teaching how to calculate financial ratios. Most of them are used to analyze historical financial statements. These analyses are very useful in...