The purpose of the study is to contemplate different approaches to the problem of reinvesting retained earnings in order to construct an adequate financial model. Actually, an optimistic forecast may imply exponential growth of income through reinvestment of retained earnings. If the retained...

There is a lot of confusion among practitioners about valuing firms and investment projects. At the first sight, the discounting procedure is a simple and routine task which does not involve much effort. But actually even in simple cases accurate valuation requires attention to plenty of...

The interrelationships between cash flows, corresponding discount rates and values follow certain rules, knowing which one can quite easily and correctly find out value of given cash flow using the discounting-by-components framework, or to find the correct formulation of the discount rate for...

The paper provides review of Modigliani-Miller capital structure irrelevance proposition and its development since 1958. The paper suggests some pedagogical insights and introduce risk-shifting interpretations of the MM model. We also discuss shapes of cost of debt and cost of equity functions...

The paper addresses the problem of appropriate risk premium for a discount rate for cash outflows. It finds that adequate risk premium may be positive or negative for either cash inflows or cash outflows depending on the correlation, proportion and standard deviation of cash flows relative to...

Purpose – The purpose of this paper is to investigate the approaches to calculate measures of value creation incorporating capital charge, to reveal inconsistencies in combining market and book values in a single measure and to suggest necessary corrections.Design/methodology/approach – The...

The paper discusses common mistakes made by financial profession when valuating cash flows by applying inconsistent weighted average discount rates to cash flows to equity, to unlevered firm, to levered firm or other complex cash flows not regarding their type (constant or growing perpetuities,...

There is little criticism of downside measures approach to estimating risk premiums. Instead, this model attracted attention of both academics and practitioners. For example, Abbas et al (2011) refer to DCAPM as “long-awaited solution for asset pricing problem”. Estrada (2006, 2007), Post...