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...

In this note we correct the findings reported by Vélez-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 be,...

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...

En esta nota pedagógica presento algunas sugerencias e ideas que puede ser útil tener en cuenta cuando se trata de pronosticar estados financieros a partir de datos históricos. Las ideas que se presentan son el resultado de la experiencia de aconsejar a los estudiantes de licenciatura y de...

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 I list some suggestions that might be useful to take into account when forecasting financial statements departing from historical data. The ideas presented in this note are the result of advising undergraduate and graduate students in the course Econ 195.96/295.96...

Todo el mundo usa los ahorros en impuestos, AI o escudos fiscales cuando se calcula elCosto Promedio Ponderado de Capital (CPPC) en inglés Weighted Average Cost of Capital (WACC). Esta formula de los libros de texto incluye el AI cuando se introduce el factor (1-T) que afecta la contribución...

We discuss some ideas useful when forecasting financial statements that are based on historical data.The chapter is organized as follows: First we discuss the relevance of prospective analysis for non traded firms. In a second section we a basic reviews of subjects that will be needed for...

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...

La mayoría de los textos de finanzas corporativas y los analistas presentan el cálculo delCosto Promedio Ponderado de Capital CPPC (WACC) como independiente del Flujo de caja libre.Es una práctica común que los analistas calculen un CPPC (WACC) a priori y lo usen independientemente del valor...