Title: How to Avoid Mistakes in Valuation - Comment to 'Consistency in Valuation: A Practical Guide' by Velez-Pareja and Burbano-Perez and Some Pedagogical Notes on Valuation and Costs of Capital
Abstract: 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, or finite). The author supports the suggestions of Velez-Pareja and Burbano-Perez and believes that the Table reviewing specific formulas for every type of cash flows should be included in modern textbooks and practical guidelines concerning valuation. The preferred method for valuation is Discounting-by-Components (D-by-C) approach, which allows avoid circularity and reduces the probability of errors for above-mentioned inconsistencies.
Publication Year: 2009
Publication Date: 2009-01-01
Language: en
Type: article
Indexed In: ['crossref']
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