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Capital Cash Flows, APV and Valuation

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  • Laurence Booth

Abstract

"This paper examines three different methods of valuing companies and projects: the adjusted present value (APV), capital cash flows (CCF) and weighted average cost of capital (WACC) methods. It develops the appropriate WACC and beta leveraging formulae appropriate for each valuation model, so that given a particular valuation model the correct APV and CCF values can be determined from the WACC value and vice versa. Further it goes on to show when the perpetuity formulae give poor estimates of the value of individual cash flows, even though the overall values are correct. The paper cautions that the APV and CCF models require more information than is currently known, such as the value of the corporate use of debt, and consequently can give misleading results, particularly in sensitivity analyses." Copyright 2007 The Authors Journal compilation (c) 2007 Blackwell Publishing Ltd.

Suggested Citation

  • Laurence Booth, 2007. "Capital Cash Flows, APV and Valuation," European Financial Management, European Financial Management Association, vol. 13(1), pages 29-48.
  • Handle: RePEc:bla:eufman:v:13:y:2007:i:1:p:29-48
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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-036X.2006.00284.x
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    Cited by:

    1. Qi Howard, 2010. "Valuation Methodologies and Emerging Markets," Journal of Business Valuation and Economic Loss Analysis, De Gruyter, vol. 5(1), pages 1-18, April.
    2. Qi, Howard, 2011. "Value and capacity of tax shields: An analysis of the slicing approach," Journal of Banking & Finance, Elsevier, vol. 35(1), pages 166-173, January.

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