Valuing Companies by Cash Flow Discounting: Fundamental Relationships and Unnecessary Complications
University of Navarra - IESE Business School
July 26, 2012
A version in Spanish may be downloaded in: http://ssrn.com/abstract=2089397
Company valuation using discounted cash flows is based on the valuation of the Government bonds: it consists of applying the procedure used to value the Government bonds to the debt and shares of a company. This is easy to understand (sections 1, 2 and 3).
But company valuation is complicated by ‘additions’ (formulae, concepts, theories…) to complicate its understanding (see sections 4 to 15) and to provide a more “scientific”, “serious”, “intriguing”, “impenetrable”,… appearance. Among the most commonly used ‘additions’ are: WACC, beta (B), market risk premium, beta levered and beta unlevered.
Number of Pages in PDF File: 16
Keywords: Valuation, discounted cash flow, equity premium, required equity premium, WACC, expected equity premium, beta, VTS
JEL Classification: G12, G31, M21working papers series
Date posted: July 27, 2012 ; Last revised: February 3, 2013
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