Cash Flows in Perpetuity with Different Growth Rates for the FCF and the Debt: A Numerical Illustration

8 Pages Posted: 13 Jun 2019

See all articles by Joseph Tham

Joseph Tham

Educational Independent Consultant

Date Written: June 1, 2019

Abstract

In this note, we present a simple numerical example to illustrate the case where the growth rate for the Free Cash Flow (FCF) gU is greater than but different from the growth rate for the Cash Flow to Debt (CFD) gD. Here we assume that the value of the appropriate discount rate for the tax shield KTS equals the cost of debt KD.

Keywords: Financial modeling, Valuation, Weighted Average Cost of Capital (WACC), Free Cash Flow (FCF), Cash Flow in Perpetuity

JEL Classification: D61, H43, M21, M40, M46, G12, G31, G33

Suggested Citation

Tham, Joseph, Cash Flows in Perpetuity with Different Growth Rates for the FCF and the Debt: A Numerical Illustration (June 1, 2019). Available at SSRN: https://ssrn.com/abstract=3397477 or http://dx.doi.org/10.2139/ssrn.3397477

Joseph Tham (Contact Author)

Educational Independent Consultant ( email )

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