A typical approach for valuing finite cash flows is to assume that leverage is constant (usually as target leverage) and the cost of equity, Ke and the Weighted Average Cost of Capital, WACC are also assumed to be constant. For cash flows in perpetuity, and with the cost of debt, Kd as the...

Although we know there exists a simpleapproach to solve the circularitybetween value and the discount rate,known as the Adjusted Present Valueproposed by Myers, 1974, it seemsthat practitioners still rely on thetraditional Weighted Average Cost ofCapital, WACC approach of weightingthe cost of...

ABSTRACTFrequently, analysts and teachers use the capitalized rate of interest for the cost of debt when forecasting and discounting cash flows. Others estimate the interest payments when forecasting annual financial statements or cash flows based on the average of debt calculated with the...