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This is an annotated appendix that accompanies the paper. In this note, we provide detailed commentary on a numerical example that illustrates the ideas that we discuss in the main paper. The numerical example is in Table18.10, Chapter 8, page 656, of the third edition of Corporate Finance,...
Persistent link: https://www.econbiz.de/10012888920
In this note, we extend a numerical example in the textbook by Berk & DeMarzo that matches methods for only when K<sub>TS</sub> is equal to K<sub>D</sub>. We show that there is a generalized formulation for the return to levered equity K<sub>E</sub> that works for any value of K<sub>TS</sub>, the appropriate discount rate for the tax...
Persistent link: https://www.econbiz.de/10012889082
This is a draft of Chapter 1 for an upcoming book on Financial Modeling & Valuation. Informally, the chapter introduces the basic concepts in cash flow valuation. It reviews the different types of finite cash flows and discusses the cost of capital with and without taxes in a world with perfect...
Persistent link: https://www.econbiz.de/10012889377
In this rejoinder, we note that the complaint against the classic FCF WACC is misplaced because it incorrectly identifies the real source of the problem. The fault for the discrepancies, dear colleagues, lies not in the classic formulation of the FCF WACC. The real reason for the discrepancies...
Persistent link: https://www.econbiz.de/10012890371
In this short note, we present a nontechnical retrospection on the unbearable longevity of the classic WACC (Weighted Average Cost of Capital) for the Free Cash Flow (FCF) in perpetuity. Over the past two decades, researchers in finance have increased greatly our understanding of the properties...
Persistent link: https://www.econbiz.de/10012890819
This paper presents three different approaches for calculating the levered annual values for a finite cash flow profile. In the first approach, we use K<sub>U</sub>, the return to unlevered equity to calculate the annual tax savings and use K<sub>U</sub> to calculate the (present) value of the tax savings. In the...
Persistent link: https://www.econbiz.de/10012832637
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...
Persistent link: https://www.econbiz.de/10012735421
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...
Persistent link: https://www.econbiz.de/10012735438
In the financial appraisal of a project, the cashflow statements are constructed from two points of view: The Total Investment (TI) Point of View and Equity Point of View. One of the most important issues is the estimation of the correct financial discount rates for the two points of view. In...
Persistent link: https://www.econbiz.de/10012739448
Unquestionably, before the advent of the personal computer, modeling the impacts of inflation in investment appraisal was an enormous task. Currently, with the widespread availability of personal computers, conducting investment appraisal by constructing financial statements with nominal prices...
Persistent link: https://www.econbiz.de/10012741644