An Practical Example of the Application of the WACC-Approach
Andreas Löffler has recorded a video-stream (0:37 h) with a practical application of the WACC-approach: How does it work, what information is necessary, what are the relevant steps and what caveats do exist? You find that video on the web.
Lectures
Andreas Löffler has recorded video-streams for some sections of the book (QUT Brisbane, Spring 2011) as well as a German class (Universität Paderborn, Winter 2009). You need Adobe's Flash Player and can download handouts (PDF) for the class.
All material was written in LaTeX (using Till Tantau's beamer class, in case you think PowerPoint would be the better program to present slides you should read Edward Tuftes essay on PowerPoint). In case you want to change the slides you can also download the complete LaTeX source code of the material. Solutions are included in the book.
| Section | Contents (Videos) | PDF-Handout |
|---|---|---|
| Lecture 1.1 | Basic Elements (English or German class) | Handout |
| Lecture 1.2 | Conditional Expectation (English or German class) | Handout |
| Lecture 1.3 | Valuation Concept (English or German class) | Handout |
| Lecture 2.1 | Corporate Income Tax - Unlevered firms (English or German class) | Handout |
| Lecture 2.2 | Levered firms (English or German class) | Handout |
| Lectures 2.3, 2.4.1-2.4.3 | Autonomous Financing and Financing based on Market Values, I (German class) | Handout |
| Lectures 2.4.4-2.4.5 | Financing based on Market Values, II (German class) | Handout |
| Lecture 2.5 | Financing based on Book Values (German class) | Handout |
| Lecture 2.6 | Exotic Financing | Handout |
| Lecture 3.1 | Personal Income Tax (German class) | Handout |
| Lecture 3.2 | Cost Of Capital And Tax Rate (German class) | Handout |
Further Material
We provide several Mathematica files where we evaluated the value of our examples:
For the finite example with corporate income tax and personal income tax,
For the infinite example with corporate income tax and personal income tax.
Quotes
"Compared with the huge number of books on pragmatic approaches to discounted cash flow valuation, there are remarkably few that lay out the theoretical underpinnings of this technique. Kruschwitz and Löffler 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, London Business School
"This treatise on the market valuation of corporate cash flows offers the first reconciliation of conventional cost-of-capital valuation models from the corporate finance literature with state-pricing (or ‚risk-neutral' pricing) models subsequently developed on the basis of multi-period no-arbitrage theories. Using an entertaining style, Kruschwitz and Löffler develop a precise and theoretically consistent definition of ‚cost of capital', and provoke readers to drop vague or contradictory alternatives. "
Darrell Duffie, Stanford University
"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 (Dynamic Asset Pricing Theory). The style is very engaging, which is rare in books pitched at this level."
Martin Lally, University of Wellington
"Handling firm and personal income taxes properly in valuation involves complex considerations. This book offers a new, precise, clear and concise theoretical path that is pleasant to read. Now it is the practitioners task to translate this approach into real-world applications!"
Wolfgang Wagner, PricewaterhouseCoopers