Capital Cash Flows: A Simple Approach to Valuing Risky Cash Flows
28 Pages Posted: 1 Jun 2000
There are 2 versions of this paper
Capital Cash Flows: A Simple Approach to Valuing Risky Cash Flows
Capital Cash Flows: A Simple Approach to Valuing Risky Cash Flows
Date Written: March 2000
Abstract
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.
JEL Classification: G31, G12
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Debt Policy, Corporate Taxes, and Discount Rates
By Mark Grinblatt and Jun Liu
-
Debt Policy, Corporate Taxes, and Discount Rates
By Mark Grinblatt and Jun Liu
-
Unconventional Wisdom on Psi, the Appropriate Discount Rate for the Tax Shield
By Joseph Tham and Nicholas X. Wonder
-
The Non-Conventional Wacc with Risky Debt and Risky Tax Shield
By Joseph Tham and Nicholas X. Wonder
-
Guide for Forecasting Financial Statements and Financial Valuation of a Business Plan (in Spanish)
-
Three Discount Methods for Valuing Projects and the Required Return on Equity
-
WACC: definición, interpretaciones equivocadas y errores (WACC: Definition and Errors)