Publisher's Synopsis
Excerpt from Calculating the Present Value, of Riskless Cash Flows
In this note I use arbitrage arguments to prove that the minimal present value of a stream of after-tax riskless cash flows is determined by discounting them at the after - tax discount rate. In the proof the firm constructs the arbitrage by issuing riskless debt with after-tax payments that exactly offset the stream of after-tax cash flows being valued. This equivalent loan is feasible since the firm can secure it with the riskless stream of cash inflows. Furthermore, the equivalent loan is an appropriate arbitrage portfolio in the sense that it eliminates changes in the amount of net debt which would otherwise be associated with the project. Net riskless debt is defined as the present value of riskless cash outflows less the present value of riskless cash inflows. Since the outflows of the equivalent loan exactly offset the riskless inflows from the project in each period, the arbitrage proof does not result in any changes in the firm's riskless net debt. About the Publisher Forgotten Books publishes hundreds of thousands of rare and classic books. Find more at www.forgottenbooks.com This book is a reproduction of an important historical work. Forgotten Books uses state-of-the-art technology to digitally reconstruct the work, preserving the original format whilst repairing imperfections present in the aged copy. In rare cases, an imperfection in the original, such as a blemish or missing page, may be replicated in our edition. We do, however, repair the vast majority of imperfections successfully; any imperfections that remain are intentionally left to preserve the state of such historical works.
