Incorporating financing-related determinants of value in the discounted cash flow model

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Abstract

The paper discusses how some of the main types of interaction between financing and value can be incorporated in the discounted cash flow model of valuation, including effects arising from taxes, transactions costs, disclosure, information asymmetry and agency problems. It explains whether a given effect should appear in a project's cash flows, in its cost of capital or as an upfront adjustment to value. Most of the effects imply that the principle of value additivity does not hold.
Original languageEnglish
Pages (from-to)274-298
Number of pages25
JournalJournal of Economic Surveys
Volume22
Issue number2
DOIs
Publication statusPublished - 2008

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