In cash flow valuation, on grounds of simplicity, it is common to assume that the leverage is constant over time. With constant leverage, the return to levered equity is constant and consequently, the Weighted Average Cost of Capital (WACC) applied to the Free Cash Flow is constant. However,...

cash flow and time value of money. In this note we specify very clearly what has to be included in those cash flows and the reasons why they should be included. The main issue is related to the inclusion or exclusion of some items in the working capital and the current practice to consider that...

In “Consistency in Chocolate: A Fresh Look at Copeland’s Hershey Foods & Co Case” we showed the inconsistencies regarding the assumption of constant leverage and the inconsistency in the values for equity calculated with different approaches. In this second part we show the differences in...