Abstract
This chapter explains the concepts of cash flow, ideas in market-based cash flow valuation. A lot many people find these definitions too difficult and tiresome to understand. However, it is important to understand these topics in order to strengthen the basis of later, more complicated topics. Weighted Average Cost of Capital (WACC) that is applied to both the Free Cash Flow (FCF and the Capital Cash Flow (CCF) are few complicate topics touched in this chapter. This chapter explains CCF in great details while constructing the nominal financial statements and calculating the costs of capital. Using finite streams of cash flows, except in the calculation of the terminal value (TV) at the end of the forecast (or planning) period, where out of necessity cash flows in perpetuity to account for the cash flows that occurs in the years beyond the forecast period. On grounds of simplicity, it is most common to illustrate the ideas on the WACC with cash flows in perpetuity.
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