Lutz Kruschwitz – Discounted Cash Flow

LUTZ KRUSCHWITZ – DISCOUNTED CASH FLOW

Firm valuation is an exciting topic. It is interesting for economists who are engaged in either theory or practice. The literature recommends logical, quantitative methods to establish the value of future free cash flows. The firm valuation is the same as the discounted cash flow calculation. There are different versions of the same thing. The entity approach and equity approach are different. Acronyms, such as APV or WACC, are classified under entity approach.

Why aren’t there just one procedures? Is it possible that they all lead to the same result? Where are the economic differences? For what purpose are different methods needed? Do the procedures suffice? Is there a situation where none of the concepts developed up to now deliver the correct value of the firm? How is the appropriate valuation formula to be found? Even the practitioners who are confronted with the task of marketing their results have to deal with these questions. The way in which the different variations of the DCF concept are related is explained by the authors.

There are discounts for LFFLER.

Compared to the huge number of books on pragmatic approaches to discounted cash flow valuation, there are few that lay out the theoretical underpinning of this technique. Kruschwitz and Lffler bring together the theory in this area in a consistent and rigorous way that should be useful for all serious students of the topic.

Ian Cooper is a student at the London Business School.

The first reconciliation of conventional cost-of-capital valuation models from the corporate finance literature with state-pricing (or risk-neutral) models subsequently developed on the basis of multi-period no-arbitrage theories is offered in this treatise. Kruschwitz and Lffler use an entertaining style to create a precise and theoretically consistent definition of the cost of capital.

Darrell Duffie is a student at the university.

Handling firm and personal income taxes correctly in valuation involves complex considerations. A new, precise, clear and concise theoretical path is offered in this book. It is the practitioners job to translate this approach into real-world applications.

Wolfgang Wagner is a partner at the accounting firm.

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. The style is engaging, which is rare in books at this level.

Martin Lally is a professor at the University of Wellington.