Firm valuation is currently a very exciting topic. It is
interesting for those economists engaged in either practice or
theory, particularly for those in finance. The literature on firm
valuation recommends logical, quantitative methods, which deal with
establishing today's value of future free cash flows. In this
respect firm valuation is identical with the calculation of the
discounted cash flow, DCF. There are, however, different coexistent
versions, which seem to compete against each other. Entity approach
and equity approach are thus differentiated. Acronyms are often
used, such as APV (adjusted present value) or WACC (weighted
average cost of capital), whereby these two concepts are classified
under entity approach.
Why are there several procedures and not just one? Do they all
lead to 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 none of the concepts developed up to now delivers the correct
value of the firm? If so, how is the appropriate valuation formula
to be found? These questions are not just interesting for
theoreticians; even the practitioner who is confronted with the
task of marketing his or her results has to deal with it. The
authors systematically clarify the way in which these different
variations of the DCF concept are related throughout the book
ENDORSEMENTS FOR LOFFLER: DISCOUNTED 0-470-87044-3
""Compared with the huge number of books on pragmatic approaches
to discounted cash flow valuation, there are remarkably few that
lay out the theoretical underpinnings of this technique. Kruschwitz
and Loffler bringtogether the theory in this area in a consistent
and rigorous way that should be useful for all serious students of
the topic,""
--Ian Cooper, London Business School
""This treatise on the market valuation of corporate cash flows
offers the first reconciliation of conventional cost-of-capital
valuation models from the corporate finance literature with
state-pricing (or 'risk-neutral' pricing) models subsequently
developed on the basis of multi-period no-arbitrage theories. Using
an entertaining style, Kruschwitz and Loffler develop a precise and
theoretically consistent definition of 'cost of capital', and
provoke readers to drop vague or contradictory alternatives,""
--Darrell Duffie, Stanford University
""Handling firm and personal income taxes properly in valuation
involves complex considerations. This book offers a new, precise,
clear and concise theoretical path that is pleasant to read. Now it
is the practitioners task to translate this approach into
real-world applications"!"
--Wolfgang Wagner, PricewaterhouseCoopers
""It is an interesting book, which has some new results and it
fills a gap in the literature between the usual undergraduate
material and the very abstract PhD material in such books as that
of Duffie (Dynamic Asset Pricing Theory). The style is very
engaging, which is rare in books pitched at this level,""
--Martin Lally, University of Wellington
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