Based on the insight that risk exposure as quantified in the consumption based asset pricing model (CCAPM) is linearly proportional to the cash flow growth rate, we introduce a discounted cash flow model with a time-varying expected return structure matching the implicitly assumed risk exposure...

The DCF method or multiples are used to value companies in practice. Starting with the value additivity principle, the paper presents a general framework for DCF valuation. This framework allows defining stepwise and aggregated approaches to value risky cash flows and identifying inconsistent...

Dividend discount model (DDM) is the simplest model for valuing equities in finance. Many analysts belived that DDM is outmoded, but much of the intuition that drives Discounted Cash Flow (DCF) valuation is embedded in the DDM model. There are also specific companies stocks where the DDM model...

Standard equity valuation approaches (i.e., DDM, RIM, and DCF model) are derived under the assumption of ideal conditions, such as infinite payoffs and clean surplus accounting. Because these conditions are hardly ever met, we extend the standard approaches, based on the fundamental principle of...

This paper concerns the terminal value calculation, represented by {numerator/(r-g)} where r and g define, respectively, the discount factor and the growth rate. Expressions of this kind derive from discounting a geometric series of payoffs, the Gordon-Williams model providing the prototype....

This paper analyses the issue of the timing of expenditures in replacing fixed assets within the context of valuing firms using the free cash flow approach. Standard practice amongst both practitioners and academics is to assume a smooth pattern in these expenditures past some future point, and...

Especially with the evaluation of non-listed (medium-sized) companies, the following problems and significant restrictions pertaining to the applicability of the CAPM must be taken into account when determining cost of capital. 1. Homogeneity of expectations and planning consistency. Given the...

Koziol (2014) derives a simple adjusted WACC equation for firm valuation that takes default probability, possible loss of future tax savings, and the potential costs of financial distress into account. In this note we show that the derivation of the adjusted formula rests on an assumption that,...