Eva© Made Simple: Is it Possible? (Una Forma Sencilla De Calcular El Eva© )

14 Pages Posted: 4 May 2005

See all articles by Ignacio Velez-Pareja

Ignacio Velez-Pareja

Grupo Consultor CAV Capital Advisory & Valuation

Joseph Tham

Duke University - Duke Center for International Development in the Sanford School of Public Policy; Academy of Public Administration under the President of the Republic of Kazakhstan

Date Written: May 5, 2004

Abstract

Vélez-Pareja and Tham, 2003a, Vélez-Pareja and Tham, 2003b and Tham and Vélez-Pareja, 2004 showed the matching between discounted cash flow (DCF) methods and value added methods. They departed from the net operating profit less adjusted taxes NOPLAT and net income when using market values to calculate the weighted average cost of capital (WACC) and the cost of levered equity, Ke. In those previous works they assumed that the proper discount rate for the tax savings is the unlevered cost of equity, Ku. We assume the same discount rate in this paper. The previous procedures implied circularity between the cost of capital and the levered values. In this paper we show that the same firm values can be obtained using the cost of unlevered equity, Ku and the net income and the interest charges. No circularity is found using this procedure. This article is based upon Vélez-Pareja and Tham 2004.

Note: Downloadable document is in Spanish.

Keywords: EVA, economic value added, cash flows, free cash flow, cash flow to equity, valuation, levered value, levered equity value, cost of levered equity, cost of unlevered equity, tax savings

JEL Classification: M21, M40, M46, M41, G12, G31, J33

Suggested Citation

Velez-Pareja, Ignacio and Tham, Joseph, Eva© Made Simple: Is it Possible? (Una Forma Sencilla De Calcular El Eva© ) (May 5, 2004). Available at SSRN: https://ssrn.com/abstract=714522 or http://dx.doi.org/10.2139/ssrn.714522

Ignacio Velez-Pareja (Contact Author)

Grupo Consultor CAV Capital Advisory & Valuation ( email )

Ave Miramar # 18-93 Apt 6A
Cartagena
Colombia
+573112333074 (Phone)

HOME PAGE: http://cashflow88.com/decisiones/decisiones.html

Joseph Tham

Duke University - Duke Center for International Development in the Sanford School of Public Policy ( email )

Box 90312
302, Towerview Dr, Rubenstein Hall, Room 272
Durham, NC 27708
United States
919-613-9234 (Phone)
919-681-0831 (Fax)

HOME PAGE: http://fds.duke.edu/db/Sanford/faculty/thamjx

Academy of Public Administration under the President of the Republic of Kazakhstan ( email )

Abay Street, 33a
Astana
Kazakhstan
+7 8 7172753422 (Phone)

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