This chapter is devoted to the definition and calculation of cash flows, namely, cash flow to debt, (CFD), cash flow to equity, (CFE), Capital Cash Flow, (CCF), tax savings, (TS) and free cash flow, (FCF). The direct and indirect methods are used to derive the relevant cash flow profiles for the...

In a world with taxes, there is a small discrepancy between the deflated WACC WACCDef and the real wacc. This is due to the (1-T) term that is in the standard expression for the WACC applied to the Free Cash Flow (FCF). We compare different approaches for valuing nominal and real cash flows with...

In cash flow valuation, on grounds of simplicity, it is common to assume that the leverage is constant over time. With constant leverage, the return to levered equity is constant and consequently, the Weighted Average Cost of Capital (WACC) applied to the Free Cash Flow is constant. However,...

Es ampliamente conocido que si el endeudamiento es constante en el tiempo, entonces el costo del patrimonio, Ke, y el costo promedio de capital CPPCFCL también es constante. En otras palabras, no es correcto usar un CPPCFCL constante para descontar el flujo de caja libre FCL, si el...

We argue that the Economic Value Added (EVA) is biased by design and will generally yield distorted assessment of both the operating and overall performance. Fundamentally, the scale of measurement bias depends on the interest tax shield actually obtained in a measurement period and on a book to...

Vélez-Pareja and Tham, 2003a, Vélez-Pareja and Tham, 2003b and Tham and Vélez-Pareja, 2004 showed the matching between discounted cash flow (DCF) methods and value added methods. They departed from the net operating profit less adjusted taxes NOPLAT and net income when using market values to...

This teaching note is devoted to the definition and calculation of cash flows, namely, cash flow to debt, (CFD), cash flow to equity, (CFE), capital cash flow, (CCF), tax savings, (TS) and free cash flow, (FCF). We use the direct and the indirect methods to derive the relevant cash flow profiles...

Este capítulo se dedica a la definición y el cálculo del valor terminal que es el valor de los flujos de caja que se generan en la firma o proyecto más allá del último período de la proyección. Se consideran situaciones con y sin crecimiento real y con y sin inflación. Se derivan las...

For cash flows in perpetuity without growth, analysts typically use the following formula for the return to levered equity Ke. Ke = Ku + (Ku – Kd)(1 – T)D/E (1) where Ku is the return to unlevered equity, Kd is the cost of debt, T is the tax rate, D is the market value of debt and E is...