Kruschwitz / Loeffler Discounted Cash Flow

A Theory of the Valuation of Firms
1. Auflage 2006
ISBN: 978-0-470-87045-7
Verlag: John Wiley & Sons
Format: PDF
Kopierschutz: Adobe DRM (»Systemvoraussetzungen)

E-Book, Englisch, 178 Seiten, E-Book

Reihe: Wiley Finance Series

Firm valuation is currently a very exciting topic. It isinteresting for those economists engaged in either practice ortheory, particularly for those in finance. The literature on firmvaluation recommends logical, quantitative methods, which deal withestablishing today's value of future free cash flows. In thisrespect firm valuation is identical with the calculation of thediscounted cash flow, DCF. There are, however, different coexistentversions, which seem to compete against each other. Entity approachand equity approach are thus differentiated. Acronyms are oftenused, such as APV (adjusted present value) or WACC (weightedaverage cost of capital), whereby these two concepts are classifiedunder entity approach.
Why are there several procedures and not just one? Do they all leadto the same result? If not, where do the economic differences lie?If so, for what purpose are different methods needed? And further:do the known procedures suffice? Or are there situations where noneof the concepts developed up to now delivers the correct value ofthe firm? If so, how is the appropriate valuation formula to befound? These questions are not just interesting for theoreticians;even the practitioner who is confronted with the task of marketinghis or her results has to deal with it. The authors systematicallyclarify the way in which these different variations of the DCFconcept are related throughout the book
ENDORSEMENTS FOR LÖFFLER: DISCOUNTED0-470-87044-3
"Compared with the huge number of books on pragmatic approaches todiscounted cash flow valuation, there are remarkably few that layout the theoretical underpinnings of this technique. Kruschwitz andLöffler bring together the theory in this area in a consistentand rigorous way that should be useful for all serious students ofthe topic."
--Ian Cooper, London Business School
"This treatise on the market valuation of corporate cash flowsoffers the first reconciliation of conventional cost-of-capitalvaluation models from the corporate finance literature withstate-pricing (or 'risk-neutral' pricing) models subsequentlydeveloped on the basis of multi-period no-arbitrage theories. Usingan entertaining style, Kruschwitz and Löffler develop aprecise and theoretically consistent definition of 'cost ofcapital', and provoke readers to drop vague or contradictoryalternatives."
--Darrell Duffie, Stanford University
"Handling firm and personal income taxes properly in valuationinvolves complex considerations. This book offers a new, precise,clear and concise theoretical path that is pleasant to read. Now itis the practitioners task to translate this approach intoreal-world applications!"
--Wolfgang Wagner, PricewaterhouseCoopers
"It is an interesting book, which has some new results and it fillsa gap in the literature between the usual undergraduate materialand the very abstract PhD material in such books as that of Duffie(Dynamic Asset Pricing Theory). The style is very engaging, whichis rare in books pitched at this level."
--Martin Lally, University of Wellington

Autoren/Hrsg.

Kruschwitz, Lutz

Loeffler, Andreas

Inhaltsverzeichnis

List of Figures.
List of Symbols.
List of Definitions, Theorems, etc.
Acknowledgments.
Introduction.
1. Basic Elements.
1.1 Fundamental terms.
1.1.1 Cash flows.
1.1.2 Taxes.
1.1.3 Cost of capital.
1.1.4 Time.
Problems.
1.2 Conditional expectation.
1.2.1 Uncertainty and information.
1.2.2 Rules.
1.2.3 Example.
Problems.
1.3 A first glance at business values.
1.3.1 Valuation concept.
1.3.2 Cost of capital as conditional expected returns.
1.3.3 A first valuation equation.
1.3.4 Fundamental theorem of asset pricing.
Problems.
1.4 Further literature.
2. Corporate Income Tax.
2.1 Unlevered firms.
2.1.1 Valuation equation.
2.1.2 Weak auto-regressive cash flows.
2.1.3 Example (continued).
Problems.
2.2 Basics about levered firms.
2.2.1 Equity and debt.
2.2.2 Earnings and taxes.
2.2.3 Financing policies.
2.2.4 Default.
2.2.5 Example (finite case continued).
Problems.
2.3 Autonomous financing.
2.3.1 Adjusted present value (APV).
2.3.2 Example (continued).
Problems.
2.4 Financing based on market values.
2.4.1 Flow to equity (FTE).
2.4.2 Total cash flow (TCF).
2.4.3 Weighted average cost of capital (WACC).
2.4.4 Miles-Ezzell- and Modigliani-Miller adjustments.
2.4.5 Example (continued).
Problems.
2.5 Financing based on book values.
2.5.1 Assumptions.
2.5.2 Full distribution policy.
2.5.3 Replacement investments.
2.5.4 Investment policy based on cash flows.
2.5.5 Example (continued).
Problems.
2.6 Other financing policies.
2.6.1 Financing based on cash flows.
2.6.2 Financing based on dividends.
2.6.3 Financing based on debt-cash flow ratio.
2.6.4 Comparing alternative forms of financing.
Problems.
2.7 Further literature.
3. Personal Income Tax.
3.1 Unlevered and levered firms.
3.1.1 'Leverage' interpreted anew.
3.1.2 The unlevered firm.
3.1.3 Income and taxes.
3.1.4 Fundamental theorem.
3.1.5 Tax shield and distribution policy.
3.1.6 Example (continued).
Problems.
3.2 Excursus: Cost of equity and tax rate.
Problems.
3.3 Retention policies.
3.3.1 Autonomous retention.
3.3.2 Retention based on cash flow.
3.3.3 Retention based on dividends.
3.3.4 Retention based on market value.
Problems.
3.4 Further literature.
4. Corporate and Personal Income Tax.
4.1 Assumptions.
4.2 Identification and evaluation of tax advantages.
4.3 Epilogue.
Problems.
Appendix: Proofs.
A.1 Proofs of theorems.
A.2 Proof of theorem.
A.3 Proof of theorem.
A.4 Proofs of theorems.
A.5 Proof of theorem.
A.6 Proofs of theorems.
A.7 Proof of theorem.
A.8 Proof of theorem.
Index.

Über Autor(innen)

Lutz Kruschwitz (pictured left) is chair of Banking andFinance at the Freie Universität in Berlin. He was born in1943 in Berlin, Germany, and is a graduate in economics from theFreie Universität in Berlin. His research interest includeinvestment and valuation theory in particular. He has writtenseveral bestselling german finance textbooks.
Andreas Löffler is chair of Banking and Finance atthe Universität of Hannover. He was born in 1964 in Szeged,Hungary, and is a graduate in mathematics and economics fromUniversität Leipzig and Freie Universität Berlin. Hisresearch interest include decision theory and valuation theory. Hehas published in a number of academic journals.