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IESE Research Papers,
IESE Business School

No D/606: Financial literature about discounted cash flow valuation

Pablo Fernandez ()
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Pablo Fernandez: IESE Business School, Postal: Research Division, Av Pearson 21, 08034 Barcelona, SPAIN

Abstract: There is a wealth of literature about discounted cash flow valuation. In this paper, we will discuss the most important papers, highlighting those that propose different expressions for the value of the tax shield (VTS). The discrepancies between the various theories on the valuation of a company's equity using discounted cash flows originate in the calculation of the value of the tax shield (VTS). This paper illustrates and analyzes 7 different theories and presents a new interpretation of the theories.

Keywords: discounted cash flow valuation; cash flow valuation; value of tax shields; present value of the net increases of debt; required return to equity

JEL-codes: G12; G31; G32

24 pages, June 15, 2005

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