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Wiley InterScience | |||||||||||
  European Financial ManagementVolume 13 Issue 1, Pages 29 - 48 Published Online: 8 Jan 2007 © 2010 Blackwell Publishing Ltd Published in conjunction with the European Financial Management Association
Abstract | References | Full Text: HTML, PDF (Size: 124K) | Related Articles | Citation Tracking  Capital Cash Flows, APV and Valuation I would like to thank participants at the 2004 Northern Finance Association, 2005 Multinational Finance Society and 2005 Financial Management Association (Europe) meetings for their comments. I would particularly like to thank the reviewer for this journal and Sebastein Lobe the discussant at the FMA (Europe) meetings for their detailed comments which have improved the paper. The usual caveat applies. Copyright 2007 The Authors Journal compilation © 2007 Blackwell Publishing Ltd KEYWORDS
capital cash flows
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APV
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valuation
KEYWORDS
G31 •
G32 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. | 
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