La Correcta Formulación Del Costo De Capital Aplicada a Flujos De Caja Finitos Y Perpetuidades Para La Valoración De Empresas Por Métodos De Descuento De Flujos De Fondos Y Métodos De Creación De Valor (The Correct Formulation of the Cost of Capital Applied to Finite Cash Flows and Perpetuities for Companies Valuation by Methods of Discounted Cash Flows and Methods of Value Creation)

2013 ◽  
Author(s):  
Fernando Romero
Keyword(s):  
Value Creation ◽  
Cost Of Capital ◽  
Cash Flows ◽  
Correct Formulation ◽  
The Cost

scholarly journals A Case for using a Real Asset Transaction Approach for Estimating the Cost of Capital from Rural Telephone Company Data

2018 ◽  
pp. 5-16
Author(s):  
Victor Glass ◽  
Keyword(s):  
Risk Premium ◽  
Cost Of Capital ◽  
Traditional Approach ◽  
Weighted Average ◽  
Cash Flows ◽  
Financial Assets ◽  
Publicly Traded ◽  
Local Exchange ◽  
Telephone Companies ◽  
The Cost

This paper develops a real asset transaction approach for estimating the cost of capital for rural telephone companies whose financial assets are not publicly traded. The transaction approach uses the actual purchase prices of rural local exchange carriers (RLECs)’ properties and cash flows for estimating the rate of return required by buyers and sellers of RLEC properties. The transaction approach produces higher cost of capital estimates than a traditional approach using a weighted average of debt and equity costs of proxy companies traded on organized exchanges. The estimated difference is in line with the risk premium estimated for small non-traded companies estimated by Duff and Phelps Ibbotson.

The Characteristics, Valuation Methods, and Information Use of Valuation Specialists

2020 ◽  
Vol 34 (3) ◽  
pp. 23-38 ◽  
Author(s):  
Kristian D. Allee ◽  
Devon Erickson ◽  
Adam M. Esplin ◽  
Teri Lombardi Yohn
Keyword(s):  
Cost Of Capital ◽  
Information Use ◽  
Cash Flows ◽  
Jel Classification ◽  
Professional Judgment ◽  
Discounted Cash Flow ◽  
Future Earnings ◽  
Valuation Model ◽  
Risk Free Rate ◽  
The Cost

SYNOPSIS We provide insights into the inputs and valuation models used by valuation specialists. We survey 172 valuation specialists and conduct several follow-up interviews covering various topics, including the valuation inputs, models, and industry information that they use, as well as how they estimate long-term growth and the cost of capital. We find that valuation specialists rely on their professional judgment to select a valuation model but prefer the discounted cash flow (DCF) model. They primarily rely on the firm's historical performance when forecasting the financial statements, but communication with management is particularly relevant for forecasting future earnings or cash flows. When estimating the cost of capital, they most commonly use the risk-free rate with subjective adjustments. The results of our study provide insights on the information use of valuation specialists that are relevant to other valuation specialists, managers, academic researchers, and regulators. JEL classification: M41; G12; G17; G32.

PROBABILITY OF SUFFICIENCY OF SOLVENCY II RESERVE RISK MARGINS: PRACTICAL APPROXIMATIONS

2017 ◽  
Vol 47 (3) ◽  
pp. 737-785 ◽  
Author(s):  
Eric Dal Moro ◽  
Yuriy Krvavych
Keyword(s):  
Life Insurance ◽  
Confidence Level ◽  
Cost Of Capital ◽  
Cash Flows ◽  
Solvency Ii ◽  
Risk Profile ◽  
List Type ◽  
Risk Margin ◽  
Insurance Contracts ◽  
The Cost

AbstractThe new Solvency II Directive and the upcoming IFRS 17 regime bring significant changes to current reporting of insurance entities, and particularly in relation to valuation of insurance liabilities. Insurers will be required to valuate their insurance liabilities on a risk-adjusted basis to allow for uncertainty inherent in cash flows that arise from the liability of insurance contracts. Whilst most European-based insurers are expected to adopt the Cost of Capital approach to calculate reserve risk margin — the risk adjustment method commonly agreed under Solvency II and IFRS 17, there is one additional requirement of IFRS 17 to also disclose confidence level of the risk margin.Given there is no specific guidance on the calculation of confidence level, the purpose of this paper is to explore and examine practical ways of estimating the risk margin confidence level measured by Probability of Sufficiency (PoS). The paper provides some practical approximation formulae that would allow one to quickly estimate the implied PoS of Solvency II risk margin for a given non-life insurance liability, the risk profile of which is specified by the type and characteristics of the liability (e.g. type/nature of business, liability duration and convexity, etc.), which, in turn, are associated with•the level of variability measured by Coefficient of Variation (CoV);•the degree of Skewness per unit of CoV; and•the degree of Kurtosis per unit of CoV2.The approximation formulae of PoS are derived for both the standalone class risk margin and the diversified risk margin at the portfolio level.

The Cost of Capital for Financial Evaluation of Plant and Machinery Capital Proposals

1989 ◽  
Vol 203 (1) ◽  
pp. 57-62
Author(s):  
R H Mole
Keyword(s):  
Net Present Value ◽  
Cost Of Capital ◽  
Capital Expenditure ◽  
Great Majority ◽  
Analytical Framework ◽  
Cash Flows ◽  
Companion Paper ◽  
Financial Appraisal ◽  
The Cost ◽  
The Impact

This paper makes the case for the close involvement of engineers in the financial appraisal of proposals for capital expenditure on plant and machinery. Post-tax assessments are now essential for the great majority of companies and this requires a coherent analytical framework which encompasses both the tax cash flows and the impact of tax upon the cost of capital in an inflationary environment. This paper deals with the impact of taxation upon the cost of capital, the discount rate and the yield (internal rate of return) which forms an essential component of modern methods of discounted cash flow financial appraisal. A companion paper considers tax cash flows and shows that the net present value discounted at the net cost of capital may be distorted in comparison to the pre-tax NPV discounted at the gross cost of capital.

Credit Default Swaps and Firm Value

2018 ◽  
Vol 53 (3) ◽  
pp. 1227-1259 ◽  
Author(s):  
Rajesh Narayanan ◽  
Cihan Uzmanoglu
Keyword(s):  
Firm Value ◽  
Cost Of Capital ◽  
Credit Default Swaps ◽  
Cash Flows ◽  
Stock Liquidity ◽  
Credit Quality ◽  
Credit Default ◽  
Incremental Information ◽  
The Cost ◽  
Free Cash Flows

This article provides evidence that firm value declines when credit default swaps (CDSs) are initiated and that the effect is greater when CDS trading activity is higher. This decline, which arises from an increase in the cost of capital as opposed to a decrease in free cash flows, traces to a deterioration in the firm’s credit quality and stock liquidity. Firm value declines less when CDS trading is likely to produce incremental information, suggesting that CDS trading has informational benefits for firm value. However, the evidence does not indicate that firm value increases because CDS availability facilitates investments.

scholarly journals Value Creation and Competitive Advantage: Empirical Evidence from Dividend Champions of the S&P 500

2018 ◽  
Vol 13 (12) ◽  
pp. 50 ◽  
Author(s):  
Marina Damilano ◽  
Nicola Miglietta ◽  
Enrico Battisti ◽  
Fabio Creta
Keyword(s):  
Comparative Analysis ◽  
Competitive Advantage ◽  
Value Creation ◽  
Average Cost ◽  
Cost Of Capital ◽  
Weighted Average ◽  
The Us ◽  
The Cost ◽  
In Virtue Of ◽  
Research Show

The aim of the paper is to verify, through the measurement of value creation, the existence of a competitive advantage in those companies recognized as “Dividend Champions” in the S&P 500. The paper uses a quantitative and explorative method of research and is divided into two sections: in the first, it identifies, within the S&P 500, those companies that have systematically, for more than 40 years, distributed dividends that have grown each year (60 firms), and in the second, it gives a comparative analysis of the Return on Invested Capital and Weighted Average Cost of Capital of the analysed firms, in order to investigate the existence of a competitive advantage. The results of our research show that the “Dividend Champions” have, in comparison to their main competitors of reference in the US market, a lasting competitive advantage, in virtue of a higher profitability with respect to the cost of capital. Specifically, we can observe that the “Dividend Champions”, classified by sector, are also “Value Champions”, able to beat competitors and having a lasting competitive advantage

CASH FLOWS, CURRENCY RISK, AND THE COST OF CAPITAL

2014 ◽  
Vol 37 (2) ◽  
pp. 139-158 ◽  
Author(s):  
Ding Du ◽  
Ou Hu
Keyword(s):  
Cost Of Capital ◽  
Cash Flows ◽  
Currency Risk ◽  
The Cost
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