We outline analytically that when testing different implied cost of capital (ICC) measures for validation by employing the Vuolteenaho (2002) framework, the cash-flow news in the validation framework should be defined in a way that considers the model specific assumed sequence of future cash...

The Spanish version of this paper can be found at: "http://ssrn.com/abstract=1996731" http://ssrn.com/abstract=1996731 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...

When calculating Tax Savings, TS we are confronted with a strange mix of accounting accrual and market value when involving TS in the calculation of the Weighted Average Cost of Capital, WACC or the Cost of Equity, Ke. Firms earn the right to TS once they accrue the interest expense and they...

In the Weighted Average Cost of Capital (WACC) applied to the free cash flow (FCF), we assume that the cost of debt is the market, unsubsidized rate. With debt at the market rate and perfect capital markets, debt only creates value in the presence of taxes through the tax shield. In some cases,...

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...

This paper shows a formulation for the cost of equity and the WACC for growing perpetuities. Some authors have derived the general expressions for those formulas but not specifically for perpetuities with constant growth. The result obtained is that a previously general formulation for a finite...

We propose in this article an alternative approach to the Discounted Cash-Flow model based on the concept of economic capital developed by Merton and Perold (1993). We define what we call cash-flow@risk that consists in stripping future cash-flows, each cut into two parts, a low risk part...