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The Mathematics of the Degree of Operating Leverage in Respect of Non-Linear Profit Functions

Sinha, Sandip - 2018

A comprehensive mathematical treatment of the profit elasticity measure of the degree of operating leverage {with special emphasis on the operating break-even point (s)} considering linear and non-linear revenue functions and non-linear (operating) cost functions {yielding non-linear (operating)...

Persistent link: https://www.econbiz.de/10012940462

Valuing Companies by Cash Flow Discounting : Only APV Does Not Require Iteration

Fernandez, Pablo - 2020

The most used methods for valuing companies by Cash Flow Discounting are equity cash flow, free cash flow, capital cash flow and APV (Adjusted Present Value). Only APV does not require iteration All four methods, if properly applied, always give the same value. This result is logical, as all the...

Persistent link: https://www.econbiz.de/10012824556

Cash Flows in Perpetuity with Different Growth Rates for the FCF and the Debt : A Numerical Illustration

Tham, Joseph - 2019

In this note, we present a simple numerical example to illustrate the case where the growth rate for the Free Cash Flow (FCF) gU is greater than but different from the growth rate for the Cash Flow to Debt (CFD) gD. Here we assume that the value of the appropriate discount rate for the tax...

Persistent link: https://www.econbiz.de/10012869300

Two Fundamental Principles for Cash Flow Valuation (CFV)

Tham, Joseph - 2019

In this note, we discuss two fundamental principles for Cash Flow Valuation (CFV). We hope that adherence to these two principles will improve the practice of CFV. These principles are general, relatively uncontroversial, and should be acceptable as starting points for cash flow valuation....

Persistent link: https://www.econbiz.de/10012871063

Optimal Capital Structure (OCS) with a Finite Cash Flow : A Simple Numerical Illustration

Tham, Joseph - 2019

In this note, we present a simple numerical example, with a finite cash flow, to illustrate the concept of the Optimal Capital Structure (OCS). First, we assume that the discount rate for the tax benefits KTB equals the return to unlevered equity KU. The cost of debt KD is a simple linear...

Persistent link: https://www.econbiz.de/10012871362

the Weirdness and Absurdity of a Specific theory on the Present Value of the Tax Benefits (PVTB) from Debt Financing

Tham, Joseph - 2019

. The weirdness or absurdity of a theory does not automatically disqualify a theory; however, perhaps another review of the … implications of the theory may have some merit. It seems that the definition of the present value of the tax benefits (PVTB) was … revised to accommodate pre-existing ideas; perhaps the new theory is masquerading as a sort of reverse engineering …

Persistent link: https://www.econbiz.de/10012872291

Discount Rate (Risk-Free Rate and Market Risk Premium) Used for 41 Countries in 2015 : A Survey

Fernandez, Pablo - 2017

This paper contains the statistics of a survey about the Risk-Free Rate (RF) and of the Market Risk Premium (MRP) used in 2015 for 41 countries. We got answers for 68 countries, but we only report the results for 41 countries with more than 25 answers.The average (RF) used in 2015 was smaller...

Persistent link: https://www.econbiz.de/10012971846

The Capital Asset Pricing Model in Economic Perspective

Dawson, Peter C. - 2020

The Capital Asset Pricing Model (CAPM) is theoretically incomplete in its demand-side focus, risk-averse investors, and internally inconsistent homogeneous beliefs; is not conclusively supported empirically; and yet it legitimizes a notion that investors can earn higher returns by bearing...

Persistent link: https://www.econbiz.de/10012857018

Market Risk Premium and Risk-Free Rate used for 59 Countries in 2018 : A Survey

Fernandez, Pablo - 2018

This paper contains the statistics of a survey about the Risk-Free Rate (RF) and the Market Risk Premium (MRP) used in 2018 for 59 countries. We got answers for 73 countries, but we only report the results for 59 countries with more than 5 answers.The change between 2015 and 2018 of the average...

Persistent link: https://www.econbiz.de/10012922768

The most common error in valuations using WACC

Fernández, Pablo - 2020

To value shares there are two usual methods that, if properly applied, provide the same value: 1/ Present value of expected free cash flows (FCF) discounted with the WACC rate and then, subtract the value of debt; and 2/ Present value of expected equity cash flows (ECF) discounted with the Ke...

Persistent link: https://www.econbiz.de/10012704170