S Corporation Valuations—An Analysis in Search of a Solution

2007 ◽  
Vol 26 (4) ◽  
pp. 127-136 ◽  
Author(s):  
Larry J. Kasper
Keyword(s):  
Empirical Evidence ◽  
Cash Flow ◽  
Discount Rate ◽  
Tax Rates ◽  
Discount Rates ◽  
Discounted Cash Flow

Abstract Until now, the approaches to valuing S corporations have focused on two main aspects: differences in tax rates for subchapter S and C corporations and the appropriate discount rates to use in valuing them. The problem lies with the fact that traditional earnings methods of valuation, including discounted cash flow, are faced with the dilemma of having a “pretax,” that is, untaxed, cash flow passed through to the S corporation shareholder that should be discounted at the post-corporate, but preshareholder, tax discount rate. Empirical evidence is critically reviewed herein.

scholarly journals Combining Environmental and Spatial Discount Rates for Valuation of Assets According to International Financial Reporting Standards

2016 ◽  
Vol 13 (1) ◽  
pp. 14-20 ◽  
Author(s):  
Justine Sophia Jaunzeme
Keyword(s):  
Cash Flow ◽  
Discount Rate ◽  
Financial Reporting ◽  
Flow Model ◽  
Ecological Economics ◽  
International Financial Reporting Standards ◽  
Reporting Standards ◽  
Discount Rates ◽  
Discounted Cash Flow ◽  
Financial Reporting Standards

Abstract Application of discount rate in finance and accounting is founded on the concept of time value of money. Discounted cash flow model is widely used for asset valuation under the International Financial Reporting Standards (in abbreviation, IFRS). The discount rate applied in valuation models normally is the best rate of return that investors would earn alternative investments. With emergence of ecological economics as a separate branch of economics, the concept of ecological (or in other words, environmental discount rate) has been elaborated. Muller (2013) in his paper ‘The Discounting Confusion: an Ecological Economics Perspective’, argues that traditional discounting can undermine long-term sustainability of the economy. In his work, Frank G. Muller considered adjusting the traditional discount rate in order to arrive at an environmental discount rate, which would help to ensure the sustainability of the economy. Hannon (2001) and Perrings (2001) in their paper ‘An Introduction to Spatial Discounting’ consider another variation of the discount rate - spatial discount rate. Spatial discount rate represents the rate at which the diffusion of environmental effects of economic activities is discounted over space. By February 2016, neither the application of environmental nor spatial discount rates under IFRS has been considered. The purpose of this paper is to analyse the implications that environmental and spatial discounting would have for the application of discounted cash flow model according to IFRS. The research methods applied are methods of economic analysis and synthesis.

scholarly journals Cost of Equity of Coal-Fired Power Generation Projects in Poland: Its Importance for the Management of Decision-Making Process

Energies ◽  
2020 ◽  
Vol 13 (18) ◽  
pp. 4833 ◽  
Author(s):  
Piotr W. Saługa ◽  
Katarzyna Szczepańska-Woszczyna ◽  
Radosław Miśkiewicz ◽  
Mateusz Chłąd
Keyword(s):  
Risk Factors ◽  
Power Generation ◽  
Decision Making ◽  
Cash Flow ◽  
Discount Rate ◽  
Equity Capital ◽  
Decision Making Process ◽  
Cost Of Equity ◽  
Discount Rates ◽  
Discounted Cash Flow

Our knowledge of discount rates plays an important role both in the discounted cash flow decision-making process and in the later phases of a project’s lifetime. It is useful than both for management and cash-flow monitoring purposes at operating stages. Investors putting money into power generation projects expect an appropriate rate of return to compensate them for a minimum acceptable real return available in the market (risk-free rate of interest) and the project’s specific risk. Due to its essential nature in the financial and economic evaluation of projects (it is the only parameter that reflects the risk), it is reasonable to assume that investors would also be interested in constituent components of that indicator. The discount rate is one parameter in the discounted cash flow analysis that takes into account the risk of a venture. Further, the previous research in this area has focused mainly on the dimension of this variable, and the structure of this parameter has not been dealt with any other studies. The proposed idea of this study met the expectations of the industry—it aimed to present a typical project implemented in the energy industry, a relatively simple methodology that allowed estimating the components within the cost of equity capital of the enterprise. In the power generation sector, one can find various types of discount rates—assessed for multiple technologies, at different development stages, and expressed differently. Owing to the know-how and decades-long experience, coal-fired power projects’ remarks may be a good benchmark for alternative low carbon technologies. That is why, in this work, a discount rate for valuing investment in new coal-fired power projects was evaluated. This assessment was made on the “bare-bones” assumption, meaning evaluations at 100% equity, after-tax, in constant (real) currency units. The analysis of the discount rate structure was performed by applying the procedure of the classical sensitivity analysis having the accuracy of key input parameters. Finally, the risk factors within the risk-adjusted discount rate were calculated. The obtained results showed the importance of individual risk factors within the risk-adjusted discount rate used in coal energy projects, which would enable a more pragmatic approach to controlling this parameter by decision-makers and understanding the risk.

The discount rate for discounted cash flow valuations of intangible assets

2010 ◽  
Vol 36 (9) ◽  
pp. 799-811 ◽  
Author(s):  
Marc Schauten ◽  
Rudolf Stegink ◽  
Gijs de Graaff
Keyword(s):  
Cash Flow ◽  
Discount Rate ◽  
Intangible Assets ◽  
Discounted Cash Flow

After-Tax Discounting: A Research Edge

2020 ◽  
Vol 27 (2) ◽  
pp. 86
Author(s):  
Hongtao Guo
Keyword(s):  
Cash Flow ◽  
Discount Rate ◽  
Capital Markets ◽  
Research Note ◽  
Dynamic State ◽  
Discount Rates ◽  
Valuation Method ◽  
Flow Processes ◽  
Risk Neutral ◽  
Tax Status

This research note addresses after-tax discounting for pricing assets. Specifically, it analyzes the appropriate way to discount after-tax payoffs from assets that trade in capital markets in which both taxable and tax-free investors can buy and sell both taxable and tax-free instruments. The effect of the tax status of the investor and the tax status of the financing tool that an investor uses on price of an asset are discussed. Secondly, it derives the proper after-tax discount rate to use in the risk neutral valuation method for pricing assets that have state-contingent payments, typically structured in a lease based transaction. Dynamic state-contingent payoffs and cash flow processes are developed. Pre-tax discounted price, after-tax discounted payoffs are considered, then after-tax discount rate is derived. Included in this analysis of state-contingent discounting is the effect of depreciation expense, the only expense associated with the use of the asset, on after-tax discount rates

OPTIMASI STRIPPING RATIO DENGAN METODE DISCOUNTED CASH FLOW PADA PROJECT PLTU MULUT TAMBANG

2020 ◽  
Vol 4 (3) ◽  
pp. 128-133
Author(s):  
Yudi Arista Yulanda ◽  
M. Taufik Toha ◽  
Fahrurrozi Syarkowi
Keyword(s):  
Cash Flow ◽  
Discount Rate ◽  
Net Present Value ◽  
Spot Price ◽  
Present Value ◽  
Discounted Cash Flow

Harga batubara acuan pada bulan Januari 2020 adalah 65.93 USD/ton turun jauh dari tahun 2018 dimana harga batubara acuan sempat mencapai 107.83 USD/ton pada bulan Agustus. Dalam upaya menaikkan ratio elektrifikasi dalam RUPTL PLN 2018-2027 PLTU Mulut Tambang mendapatkan porsi 11 persen dengan peningkatan jumlah pembangkit setiap tahun nya. Keberadaan Batubara sebagai sumber daya alam yang terbatas dan tidak dapat diperbaharui menuntut penerapan prinsip konservasi cadangan batubara untuk mengoptimalkan keuntungan dan cadangan dengan memilih Stripping Ratio yang optimum. Tujuan penelitian ini yaitu untuk menentukan Stripping Ratio Optimum yang akan memberikan keuntungan terbaik menggunakan metode discounted cash flow sehingga batas penambangan optimum (Ultimate Pit Limit) juga dapat ditentukan. Optimasi ini dilakukan dengan men-generate data variasi Stripping Ratio yang menggambarkan pit limit dan cadangan dari masing-masing stripping ratio tersebut kemudian memasukkan konsiderasi ekonomi yang di discount rate untuk mendapat angka Net Present Value (NPV) sehingga bisa dianalisis dalam kurva optimasi. Hasil penelitian adalah Stripping Ratio optimum berdasarkan kurva optimasi dengan metode Konvensional NPV skenario Spot Price adalah 4.5 dengan total cadangan 7.5jt MT dan umur tambang 8 Tahun serta NPV 21,7 juta US$.

scholarly journals After-Tax Discounting: A Research Edge

2020 ◽  
Vol 27 (1) ◽  
pp. 86
Author(s):  
Hongtao Guo
Keyword(s):  
Cash Flow ◽  
Discount Rate ◽  
Capital Markets ◽  
Research Note ◽  
Dynamic State ◽  
Discount Rates ◽  
Valuation Method ◽  
Flow Processes ◽  
Risk Neutral ◽  
Tax Status

This research note addresses after-tax discounting for pricing assets. Specifically, it analyzes the appropriate way to discount after-tax payoffs from assets that trade in capital markets in which both taxable and tax-free investors can buy and sell both taxable and tax-free instruments.  The effect of the tax status of the investor and the tax status of the financing tool that an investor uses on price of an asset are discussed. Secondly, it derives the proper after-tax discount rate to use in the risk neutral valuation method for pricing assets that have state-contingent payments, typically structured in a lease based transaction. Dynamic state-contingent payoffs and cash flow processes are developed. Pre-tax discounted price, after-tax discounted payoffs are considered, then after-tax discount rate is derived. Included in this analysis of state-contingent discounting is the effect of depreciation expense, the only expense associated with the use of the asset, on after-tax discount rates. 

scholarly journals Multiple Discount Rates for Evaluating Public Forestry Investments

1979 ◽  
Vol 55 (1) ◽  
pp. 17-20 ◽  
Author(s):  
Bennett B. Foster
Keyword(s):  
Social Welfare ◽  
Empirical Evidence ◽  
Discount Rate ◽  
High Rate ◽  
Discount Rates ◽  
Investment Evaluation ◽  
Forestry Investments ◽  
Low Rate ◽  
Multiple Step

The critical nature of the discount rate in public forestry investment evaluation is generally recognized, as is the philosophical conflict between the need for a high rate which reflects current economic and social realities, and a low rate which assures permanence and the attainment of long-term social welfare goals. Others have suggested a dual rate approach for solving this issue. The rationale leading to their dual-rate concept can be expanded into a multiple-rate concept. In addition, empirical evidence supports a multiple rate concept: one in which rates would be influenced by the duration of investment and approximated by a formula-based continuum or a multiple-step schedule. No attempt is made to set specific rates; however, there is evidence that rates above 8% are reasonable for only a decade or two, rates above 5% reasonable for durations up to approximately 50 years, and lower rates being reasonable for longer durations.

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