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? There are two versions: You can either view that stream using Windows (with its installed Media Player) or with an iPod (right click to save the file).
Lectures
Andreas Löffler has recorded video-streams for some sections of the book. You need Windows Media Player or an iPod-Video for viewing (right click to save locally). Some videos are available in German (this is from a recorded class 2005 in Hannover, Germany, provided by ELSA, the RealPlayer must be installed for viewing).
| Lecture 1.1: Basic Elements | Windows or iPod (or German class) | (0:50 h) |
| Lecture 1.2: Conditional Expectation | Windows or iPod (or German class) | (0:47 h) |
| Lecture 1.3: Valuation Concept | Windows or iPod (or German class) | (0:48 h) |
| Lecture 2.1: Corporate Income Tax - Unlevered firms | Windows or iPod (or German class) | (0:50 h) |
| Lecture 2.2: Levered firms | Windows or iPod (or German class) | (0:52 h) |
| Lecture 2.3, 2.4.1-2.4.3: Autonomous Financing and Financing based on Market Values, I | Windows or iPod (or German class) | (0:47 h) |
| Lecture 2.4.4-2.4.5: Financing based on Market Values, II | Windows or iPod | (0:24 h) |
| Lecture 2.5: Financing based on Book Values | Windows or iPod (or German class) | (0:34 h) |
| Lecture 2.6: Exotic Financing | Windows or iPod | (0:33 h) |
| Lecture 3.1: Personal Income Tax | Windows or iPod | (0:41 h) |
| Lecture 3.2: Cost Of Capital And Tax Rate | Windows or iPod | (0:31 h) |
Course Material
We provide material for a 13 week course on DCF (discounted cash flow): there is one course outline, pdf-slides for every week and a pdf-handout as well:
| Lecture 1.1: Basic Elements | Slides (pdf) | Handout (pdf) | Slides (PowerPoint) |
| Lecture 1.2: Conditional Expectation | Slides (pdf) | Handout (pdf) | Slides (PowerPoint) |
| Lecture 1.3: Valuation Concept | Slides (pdf) | Handout (pdf) | Slides (PowerPoint) |
| Lecture 2.1: Corporate Income Tax - Unlevered firm | Slides (pdf) | Handout (pdf) | Slides (PowerPoint) |
| Lecture 2.2: Levered firms | Slides (pdf) | Handout (pdf) | Slides (PowerPoint) |
| Lecture 2.3, 2.4.1-2.4.3: Autonomous Financing and Financing based on Market Values, I | Slides (pdf) | Handout (pdf) | Slides (PowerPoint) |
| Lecture 2.4.4-2.4.5: Financing based on Market Values, II | Slides (pdf) | Handout (pdf) | Slides (PowerPoint) |
| Lecture 2.5: Financing based on Book Values | Slides (pdf) | Handout (pdf) | Slides (PowerPoint) |
| Lecture 2.6: Exotic Financing | Slides (pdf) | Handout (pdf) | Slides (PowerPoint) |
| Lecture 3.1: Personal Income Tax | Slides (pdf) | Handout (pdf) | Slides (PowerPoint) |
| Lecture 3.2: Cost Of Capital And Tax Rate | Slides (pdf) | Handout (pdf) | Slides (PowerPoint) |
| Lecture 3.3: Retention Policies | Slides (pdf) | Handout (pdf) | Slides (PowerPoint) |
| Lecture 4: Corporate and Personal Income Tax | Slides (pdf) | Handout (pdf) | Slides (PowerPoint) |
All material was written in LaTeX (using Till Tantau's beamer class). In case you want to change the slides you can also download the complete LaTeX source code of the material. If you are unfamiliar with LaTeX you have another choice of downloading a (low-level) powerpoint-presentation replicating our slides (In case you think Powerpoint would be the better program to present slides you should read Edward Tuftes essay on powerpoint). If you are a teacher you can obtain our Solution Manual from us.
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."
"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
