DEBT VALUATION, ENTERPRISE ASSESSMENT AND APPLICATIONS

Didier Vanoverberghe
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Didier Vanoverberghe: Ingénieur général des Télécommunications, France

Chapter 15 in Risk Management and Value:Valuation and Asset Pricing, 2008, pp 379-435 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractThe interactive impact of the leverage effects of debt, of taxes, of the risk of bankruptcy and the generation of free cash flow, on the enterprise value, is a constant concern for business leaders in order to make investments and financial decisions. We will focus on that topic throwing a new light on recent theoretic developments in the framework of: cost information, cost of bankruptcy, tax savings, coupons, and principal payments of the debt. In this framework, this chapter:— provides the equity value as a Call of the enterprise value on the debt increased by the coupons effects and the risk of bankruptcy effects;— demonstrates that the values of the different assets have stochastic drifts μ and volatilities σ— gives the values of these rates;— provides an adjusted CAPM and an instantaneous Beta which is stochastic and time-dependent, that better fits with the current reality;— make the link between the various models studied of which the usual model is of the financial analysts Discounted Cash Flow (DCF).

Keywords: Risk; Value; Management; Derivatives (search for similar items in EconPapers)
Date: 2008
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