In the standard 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...

In this teaching note, we present an integrated, consistent market-based framework for valuing finite cash flows. We derive the relevant cash flows from integrated financial statements, and based on Modigliani and Miller's (M amp; M) theories, we estimate the appropriate cost of capital and...

This is a summary of the basic ideas on valuation depicted as a conceptual map. Under the assumption that Capital Asset Pricing Model, CAPM, works and that the discount rate for the tax savings is Ku, I show the sequence of calculations and interactions among the variables, beta, values, cash...

This is a summary of the basic ideas on valuation depicted as a conceptual map. Under the assumption that Capital Asset Pricing Model, CAPM, works and that the discount rate for the tax savings is Ku, I show the sequence of calculations and interactions among the variables, beta, values, cash...

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 growing perpetuity. Our findings are that in practical terms for a growing perpetuity there are two options: either depreciation life is one...

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 this note we correct the findings reported by Veacute;lez-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...

Practitioners and teachers in finance usually treat the most important issues in project appraisal and cash flow valuation is at least light. One is the construction of cash flows; in the other hand is the cost of capital that is intrinsically related to the valuation of the cash flows. The...

When creating a firm or when we intend to value an ongoing concern it is very important to have reliable and consistent financial statements in order to make the proper decisions not only for the starting of a new firm but for the following up and monitoring that firm or simply an ongoing...

Many firms have debt financing in a foreign currency. What are the tax implications of the foreign loan for the calculation of the Weighted Average Cost of Capital (WACC)? With a foreign loan, there are two effects. First, there is the standard tax savings from the interests deduction with the...