Recently, Lundholm and O'Keefe (2000) identified the estimation of the WACC as an important reason for the discrepancy between the value estimates obtained from the Discounted Cash Flow (DCF) and Residual Income (RI) models. In this paper, I discuss how we can obtain consistent value estimates...

This paper discusses the calculation of financial discount rates in the presence of taxes and inflation. With respect to financing, there are two options. The debt-equity ratio may be constant or variable over the life of the project. If it is assumed that the debt-equity ratio is constant, then...

The typical assumption about cashflows in perpetuity is not appropriate in practical project appraisal because the length of project life is always finite. In this paper, I discuss the calculation of multiperiod financial discount rates for a project with a finite life. The impact of taxes and...

In this note, the present value of the tax shield is reconsidered. In most corporate finance textbooks, it is commonly assumed that the discount rate for the tax shield is d, the risk-free rate for debt. Here, it is shown that the correct discount rate for the tax shield is rho, the required...

Most popular corporate finance textbooks (See Benninga and Sarig, 1997, 2007 Brealey, Myers and Marcus, 1996, Brealey, Myers and Allen, 2006, Brealey and Myers, 2000, 2003 and previous editions, Copeland, Koller and Murrin, 1995 and 2000, Damodaran, 1996, Gallagher and Andrew, 2000, Van Horne,...

The Vietnamese version is available at: http://ssrn.com/abstract=493985In project finance, the viability of the project is based on the expected cash flows generated by the project rather than on the strength of the company's balance sheet. Thus, it is relevant to construct the annual cash flow...

Everybody uses tax shields when calculating the Weighted Average Cost of Capital (WACC). The textbook formula includes the tax shield with the (1-T) factor affecting the contribution of debt to the WACC. Tax shields are a strange mix of accounting and accrual related to WACC that relies on...

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...

Der Kapitalwert lässt sich auch bei Null- und Negativzinsen zumindest über endliche Zeiträume einfach berechnen sowie betriebswirtschaftlich für Investitionsentscheidungen sinnvoll ver­wen­den. Volkswirtschaftlich ist relevant, warum es Zinsen von und unter null überhaupt gibt und ob...