TABLE OF CONTENTS (This chapter has been written in collaboration with Ramiro de la Vega and Guillermo Rossi.)
Any intelligent fool can make things bigger and more complex It takes a touch of genius and a lot of courage to move in the opposite direction.
Albert Einstein
In the previous chapters, we presented the principles of cash flow valuation within an integrated theoretical framework that is based on the typical financial statements. We stressed the use of market values in the valuation of cash flows and examined the subtleties behind the calculation of the cost of capital under ideal conditions. The natural question arises. How are these ideas used in practice by practitioners? How are cash flows valued in the real world.
In this chapter we show how we can apply the ideas to a project for a telecommunications firm in Colombia. In particular, we compare the valuations that are based on market values with the valuations that are based on book values. This case study is much more complicated than the example that was presented in Chapter Five, and has many additional assumptions and conditions.
In Appendix A, we present the transcripts of interviews with two financial practitioners from multinational firms with operations in Japan and the Philippines. [1] The practitioners comment on how the cost of capital is estimated in practice. In Appendix B, we present the background information and financial statements for the case.
The main objectives of this chapter are as...
