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Capital Cash Flows: A Simple Approach to Valuing Risky Cash Flows

Richard S. Ruback

Harvard Business School

March 2000

This paper presents the Capital Cash Flow method for valuing risky cash flows. I show that the Capital Cash Flow method is equivalent to discounting Free Cash Flows by the weighted average cost of capital. Because the interest tax shields are included in the cash flows, the Capital Cash Flow approach is easier to apply when the level of debt changes or when a specific amount of debt is projected. The paper also compares the Capital Cash Flow method to the Adjusted Present Value method and provides consistent leverage adjustment formulas for both methods.

Number of Pages in PDF File: 28

JEL Classification: G31, G12

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Date posted: June 1, 2000  

Suggested Citation

Ruback, Richard S., Capital Cash Flows: A Simple Approach to Valuing Risky Cash Flows (March 2000). Available at SSRN: http://ssrn.com/abstract=223080 or http://dx.doi.org/10.2139/ssrn.223080

Contact Information

Richard S. Ruback (Contact Author)
Harvard Business School ( email )
Boston, MA 02163
United States
617-495-6422 (Phone)
617-496-8443 (Fax)
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References:  14
Citations:  104
Footnotes:  7

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