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...

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...

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 interest deduction with the...

Debt is rarely risk-free. Yet, on grounds of simplicity, in most discussions on the weighted average cost of capital (WACC), we assume that the debt is risk-free. At the same, in the calculation of the WACC, we may use a value for the cost of debt d that is higher than the risk-free rate rf. In...

It is widely known that if the leverage is constant over time, then the after-tax Weighted Average Cost of Capital (WACC) is constant over time. In other words, it is inappropriate to use a constant after-tax WACC to discount the free cash flow (FCF) if the leverage changes over time. However,...

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...