Consistent valuation of project finance and LBOs using the flows‐to‐equity method
指出现有股权现金流法公式在债务按固定计划偿还时估值有误，推导了新公式以捕捉固定债务计划、高成本债务和财务困境成本的影响，并解决了债务成本的选择问题。
Abstract The flows‐to‐equity method is used to value transactions where debt amortizes according to a fixed schedule, requiring a formula that links the changing leverage with a time‐varying equity discount rate. We show that extant formulas yield incorrect valuations because they are inconsistent with the basic assumptions of this method. The error from using the wrong formula can be large, especially at currently low interest rates. We derive a formula that captures the effects of a fixed debt plan, potentially expensive debt, and costs of financial distress. We resolve an important issue about what to use as the cost of debt.