Do We Need to Change the Way We Value Companies with the Flows-to-Equity Method? Comments on Cooper, I. A., & Nyborg, K. G. (2018). Consistent Valuation of Project Finance and Lbos Using the Flows-to-Equity Method. European Financial Management, 24: 34-52.

Abstract

Cooper and Nyborg published a paper in the European Financial Management (January 2018). Unfortunately, one of their main results is known since 1997 (Inselbag and Kaufold 1997, not cited by Cooper and Nyborg), and can also be found in textbooks on valuation. A second main result is wrong. Another one is redundant. I think the readers of the journal should be informed about that. Of course, valuing a company with wrong formulae can cause severe financial consequences. Therefore, I have written a brief note on the article. The editor of the journal informed me that the journal does not publish any comments.

Keywords: DCF, Flow to Equity, Cost of Equity

JEL Classification: G31, G32, G34