The structure of the distributions of cash flows and discount rates in multiperiod valuation problems

Laitenberger, Jörg; Löffler, Andreas

doi:10.1007/s00291-005-0001-8

Cited by 13 publications

(5 citation statements)

References 14 publications

(19 reference statements)

Supporting

Mentioning

Contrasting

Order By: Relevance

“…17 See for an equivalent statement, e.g., Laitenberger and Löffler (2006) and Kruschwitz and Löffler (2006). 18 For the mathematical proof, we refer to Appendix 10.…”

Section: Unlevering Betamentioning

confidence: 99%

“…8 By assuming auto-regressive free cash flows as in Eq. (1), only one additional condition, e.g., the dividend ratios are deterministic, is necessary to prove that cost of capital is deterministic (see Laitenberger and Löffler 2006). Deterministic cost of capital is required to determine the value of a firm contingent on the available information at t.…”

Section: The Model 21 Basicsmentioning

confidence: 99%

See 1 more Smart Citation

Discontinuous financing based on market values and the value of tax shields

Arnold

Lahmann

Schwetzler

2017

Bus Res

View full text Add to dashboard Cite

The tax shield as present value of debt-related tax savings plays an important role in firm valuation. Driving the risk of future debt levels, the firm's strategy to adjust the absolute debt level to future changes of the firm value, labeled as (re-) financing policy, affects the value of tax shields. Standard discounted cash flow (DCF) models offer two simplified (re-) financing policies originally introduced by Modigliani and Miller (MM) as well as Miles and Ezzell (ME). In this paper, we introduce a discontinuous financing policy that refers to the refinancing intervals, i.e., the maturity structure of the firm's debt. By deriving APV valuation and beta unlevering equations that allow for this discontinuous financing policy, we show the MM and ME policies to be special cases of the proposed extension. While we document the effect of discontinuous refinancing to be economically significant when leverage is high and refinancing periods are extremely long, our results suggest that for low-levered firms with short refinancing periods, the traditional continuous refinancing-based models (like the Miles/Ezzell model) produce relatively robust value estimates. Combining capital structure and maturity structure choices, our model extends the set of feasible financing policies in DCF valuation models.

show abstract

“…17 See for an equivalent statement, e.g., Laitenberger and Löffler (2006) and Kruschwitz and Löffler (2006). 18 For the mathematical proof, we refer to Appendix 10.…”

Section: Unlevering Betamentioning

confidence: 99%

Section: The Model 21 Basicsmentioning

confidence: 99%

Discontinuous financing based on market values and the value of tax shields

Arnold

Lahmann

Schwetzler

2017

Bus Res

View full text Add to dashboard Cite

show abstract

“…In Barberis et al (1998) a violation of auto-regression was considered, although in a very different context. Our specific formulation of weak auto-regressive cash flows was first systematically examined in Laitenberger and Löffler (2006). That is also where theorems on the relation between cost of capital and conditional expected returns are found.…”

Section: Further Literaturementioning

confidence: 99%

Corporate Income Tax: WACC, FTE, TCF, APV

Kruschwitz

Löffler

2020

Springer Texts in Business and Economics

Self Cite

View full text Add to dashboard Cite

There is a variety of problems in the valuation of firms. That is why the evaluator has to make some simplifications in order to come up with a result. That also goes for the theory of valuation. We will take the first step in assuming that the firm has no debt. In simplifying with this assumption, we shall see that a number of economic problems can be discussed. In the next step we will turn to indebted firms. 3.1 Unlevered Firms Whoever has to value levered firms, also has to be able to value unlevered firms. Both are mutually conditional. By itself, this claim does not shed any light. It should be understood that if a levered firm is spoken of without naming any further details, then that remains unclear. Are we dealing with a heavily or only moderately levered firm? Will the firm's debt increase, or are the responsible managers planning to reduce the firm's credit volume? In contrast to a levered firm in which this must all be explained in detail, the circumstances of an unlevered firm are clear and simple. When we speak of an unlevered firm, we mean a firm, which will not have debts today, nor anytime in the future. Of course it is difficult to believe that there are actually such firms in our world. But this-no doubt fully correct assessment-does not matter here. All we want to state is that what we mean by an unlevered firm is completely straightforward, while by a levered firm it is not so clear without further information. Cost of Capital and Leverage A firm's cost of capital essentially depends upon two influences: firstly, the firm's business risk, and secondly, its indebtedness. It is fundamentally valid that the greater the risk is and the greater the firm's debt-equity ratio is, that much higher the expected returns are. And if we make the connection between this law and the considerations of the preceding paragraph, then the cost

show abstract

“…The topic of the prognosis of future cash flows is unfortunately very often left out, Welch (2014, chapter 20) is a notable exception. Rapp (2006) and Laitenberger (2006) discuss the question whether a suitable definition of cost of capital can be found that does not need the restriction of nonrandom returns.…”

Section: Further Literaturementioning

confidence: 99%