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Financial literature about discounted cash flow valuation

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  • Fernandez, Pablo

    ()
    (IESE Business School)

Abstract

There is a wealth of literature about discounted cash flow valuation. In this paper, we will discuss the most important papers, highlighting those that propose different expressions for the value of the tax shield (VTS). The discrepancies between the various theories on the valuation of a company's equity using discounted cash flows originate in the calculation of the value of the tax shield (VTS). This paper illustrates and analyzes 7 different theories and presents a new interpretation of the theories.

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Bibliographic Info

Paper provided by IESE Business School in its series IESE Research Papers with number D/606.

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Length: 24 pages
Date of creation: 15 Jun 2005
Date of revision:
Handle: RePEc:ebg:iesewp:d-0606

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Postal: IESE Business School, Av Pearson 21, 08034 Barcelona, SPAIN
Web page: http://www.iese.edu/
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Related research

Keywords: discounted cash flow valuation; cash flow valuation; value of tax shields; present value of the net increases of debt; required return to equity;

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References

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  1. Miles, James A. & Ezzell, John R., 1980. "The Weighted Average Cost of Capital, Perfect Capital Markets, and Project Life: A Clarification," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 15(03), pages 719-730, September.
  2. Isik Inselbag & Howard Kaufold, 1997. "Two Dcf Approaches For Valuing Companies Under Alternative Financing Strategies (And How To Choose Between Them)," Journal of Applied Corporate Finance, Morgan Stanley, Morgan Stanley, vol. 10(1), pages 114-122.
  3. Fernández , Pablo, 2002. "The value of tax shields is not equal to the present value of tax shields," IESE Research Papers, IESE Business School D/459, IESE Business School.
  4. Fernandez, Pablo, 2005. "The value of tax shields is not equal to the present value of tax shields: A correction," IESE Research Papers, IESE Business School D/581, IESE Business School.
  5. Richard S Ruback, 2002. "Capital Cash Flows: A Simple Approach to Valuing Risky Cash Flows," Financial Management, Financial Management Association, Financial Management Association, vol. 31(2), Summer.
  6. Kaplan, Steven N & Ruback, Richard S, 1995. " The Valuation of Cash Flow Forecasts: An Empirical Analysis," Journal of Finance, American Finance Association, American Finance Association, vol. 50(4), pages 1059-93, September.
  7. Myron J. Gordon & Eli Shapiro, 1956. "Capital Equipment Analysis: The Required Rate of Profit," Management Science, INFORMS, INFORMS, vol. 3(1), pages 102-110, October.
  8. DeAngelo, Harry & Masulis, Ronald W., 1980. "Optimal capital structure under corporate and personal taxation," Journal of Financial Economics, Elsevier, Elsevier, vol. 8(1), pages 3-29, March.
  9. Miller, Merton H. & Scholes, Myron S., 1978. "Dividends and taxes," Journal of Financial Economics, Elsevier, Elsevier, vol. 6(4), pages 333-364, December.
  10. Lewellen, Wilbur G. & Emery, Douglas R., 1986. "Corporate Debt Management and the Value of the Firm," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 21(04), pages 415-426, December.
  11. Miles, James A & Ezzell, John R, 1985. " Reformulating Tax Shield Valuation: A Note," Journal of Finance, American Finance Association, American Finance Association, vol. 40(5), pages 1485-92, December.
  12. Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, American Finance Association, vol. 32(2), pages 261-75, May.
  13. Robert A. Taggart & Jr., 1991. "Consistent valuation and Cost of Capital Expressions With Corporate and Personal Taxes," Financial Management, Financial Management Association, Financial Management Association, vol. 20(3), Fall.
  14. Myers, Stewart C, 1974. "Interactions of Corporate Financing and Investment Decisions-Implications for Capital Budgeting," Journal of Finance, American Finance Association, American Finance Association, vol. 29(1), pages 1-25, March.
  15. Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 411.
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Cited by:
  1. Wiktor Patena, 2011. "Company Valuation. How to Deal with a Range of Values?," "e-Finanse", University of Information Technology and Management, Institute of Financial Research and Analysis, vol. 7(3), pages 75-84, November.

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