Reconciling value estimates from the discounted cash flow model and the residual income model

This paper examines why practitioners and researchers get different estimates of equity value when they use a discounted cash flow (CF) model versus a residual income (RI) model. Both models are derived from the same underlying assumption -- that price is the present value of expected future net dividends discounted at the cost of equity capital -- but in practice and in research they frequently yield different estimates. We argue that the research literature devoted to comparing the accuracy of these two models is misguided; properly implemented, both models yield identical valuations for all firms in all years. We identify how prior research has applied inconsistent assumptions to the two models and show how these seemingly small errors cause surprisingly large differences in the value estimates. [ABSTRACT FROM AUTHOR]

New approximation for free surface flow of groundwater: capillarity correction

An existing capillarity correction for free surface groundwater flow as modelled by the Boussinesq equation is re-investigated. Existing solutions, based on the shallow flow expansion, have considered only the zeroth-order approximation. Here, a second-order capillarity correction to tide-induced watertable fluctuations in a coastal aquifer adjacent to a sloping beach is derived. A new definition of the capillarity correction is proposed for small capillary fringes, and a simplified solution is derived. Comparisons of the two models show that the simplified model can be used in most cases. The significant effects of higher-order capillarity corrections on tidal fluctuations in a sloping beach are also demonstrated. (c) 2004 Elsevier Ltd. All rights reserved.

Introduction to Discounted Cash Flow Analysis and Financial Functions in Excel

The financial and economic analysis of investment projects is typically carried out using the technique of discounted cash flow (DCF) analysis. This module introduces concepts of discounting and DCF analysis for the derivation of project performance criteria such as net present value (NPV), internal rate of return (IRR) and benefit to cost (B/C) ratios. These concepts and criteria are introduced with respect to a simple example, for which calculations using MicroSoft Excel are demonstrated.

Application of a coupled ground-surface water flow model to simulate periodic groundwater flow influenced by a sloping boundary, capillarity and vertical flows

Theoretical developments as well as field and laboratory data have shown the influence of the capillary fringe on water table fluctuations to increase with the fluctuation frequency. The numerical solution of a full, partially saturated flow equation can be computationally expensive. In this paper, the influence of the capillary fringe on water table fluctuations is simplified through its parameterisation into the storage coefficient of a fully-saturated groundwater flow model using the complex effective porosity concept [Nielsen, P., Perrochet, P., 2000. Water table dynamics under capillary fringes: experiments and modelling. Advances in Water Resources 23 (1), 503-515; Nielsen, P., Perrochet, P., 2000. ERRATA: water table dynamics under capillary fringes: experiments and modelling (Advances in Water Resources 23 (2000) 503-515). Advances in Water Resources 23, 907-908]. The model is applied to sand flume observations of periodic water table fluctuations induced by simple harmonic forcing across a sloping boundary, analogous to many beach groundwater systems. While not providing information on the moisture distribution within the aquifer, this approach can reasonably predict the water table fluctuations in response to periodic forcing across a sloping boundary. Furthermore, he coupled ground-surface water model accurately predicts the extent of the seepage face formed at the sloping boundary. (C) 2005 Elsevier Ltd. All rights reserved.

Agency problems and capital expenditure announcements

This article examines the market valuation of announcements of new capital expenditure. Prior research suggests that the firm's growth opportunities and cash flow position condition the market response. This study jointly examines the role of growth and cash flow, and the interaction between them. Using a new data set of Australian firms that avoids problems associated with expectations models, the results are remarkably strong and support a positive association between growth opportunities and the market valuation, in addition to supporting the role of free cash flow. The findings have implications for the relationship between general investment information and stock prices.

Steepness expansion for free surface flows in coastal aquifers

Free surface flow of groundwater in aquifers has been studied since the early 1960s. Previous investigations have been based on the Boussinesq equation, derived from the non-linear kinematic boundary condition. In fact, the Boussinesq equation is the zeroth-order equation in the shallow-water expansion. A key assumption in this expansion is that the mean thickness of the aquifer is small compared with a reference length, normally taken to be the linear decay length. In this study, we re-examine the expansion scheme for free surface groundwater flows, and propose a new expansion wherein the shallow-water assumption is replaced by a steepness assumption. A comparison with experimental data shows that the new model provides a better prediction of water table levels than the conventional shallow-water expansion. The applicable ranges of the two expansions are exhibited. (c) 2004 Elsevier B.V. All rights reserved.

Effects of temperature-dependent viscosity variation on entropy generation, heat and fluid flow through a porous-saturated duct of rectangular cross-section

Effect of temperature-dependent viscosity on fully developed forced convection in a duct of rectangular cross-section occupied by a fluid-saturated porous medium is investigated analytically. The Darcy flow model is applied and the viscosity-temperature relation is assumed to be an inverse-linear one. The case of uniform heat flux on the walls, i.e. the H boundary condition in the terminology of Kays and Crawford, is treated. For the case of a fluid whose viscosity decreases with temperature, it is found that the effect of the variation is to increase the Nusselt number for heated walls. Having found the velocity and the temperature distribution, the second law of thermodynamics is invoked to find the local and average entropy generation rate. Expressions for the entropy generation rate, the Bejan number, the heat transfer irreversibility, and the fluid flow irreversibility are presented in terms of the Brinkman number, the Péclet number, the viscosity variation number, the dimensionless wall heat flux, and the aspect ratio (width to height ratio). These expressions let a parametric study of the problem based on which it is observed that the entropy generated due to flow in a duct of square cross-section is more than those of rectangular counterparts while increasing the aspect ratio decreases the entropy generation rate similar to what previously reported for the clear flow case.

Eight-state supersymmetric U model of strongly correlated fermions

An integrable eight-state supersymmetric U model is proposed, which is a fermion model with correlated single-particle and pair hoppings as well as uncorrelated triple-particle hopping. It has a gl(3/1) supersymmetry and contains one symmetry-preserving free parameter. The model is solved and the Bethe ansatz equations are obtained. [S0163-1829(98)00616-X].

Tidal fluctuations in a leaky confined aquifer: localised effects of an overlying phreatic aquifer

Damping of tidal head fluctuations in a leaky confined coastal aquifer is enhanced by leakage into an overlying phreatic aquifer. We show that the phreatic aquifer is, however, resistant to the leakage flow and in particular, a deep phreatic aquifer can reduce the leakage effects significantly. An analytical solution, based on a vertical flow model for the phreatic aquifer, is derived for quantifying the role of this upper free water body in tidal propagation in the lower semi-confined aquifer. (C) 2002 Elsevier Science B.V. All rights reserved.

Marker concentration patterns of labelled leaf and stem particles in the rumen of cattle grazing bermuda grass (Cynodon dactylon) analysed by reference to a raft model

Large (>1600 mum), ingestively masticated particles of bermuda grass (Cynodon dactylon L. Pers.) leaf and stem labelled with Yb-169 and Ce-144 respectively were inserted into the rumen digesta raft of heifers grazing bermuda grass. The concentration of markers in digesta sampled from the raft and ventral rumen were monitored at regular intervals over approximately 144 h. The data from the two sampling sites were simultaneously fitted to two pool (raft and ventral rumen-reticulum) models with either reversible or sequential flow between the two pools. The sequential flow model fitted the data equally as well as the reversible flow model but the reversible flow model was used because of its greater application. The reversible flow model, hereafter called the raft model, had the following features: a relatively slow age-dependent transfer rate from the raft (means for a gamma 2 distributed rate parameter for leaf 0.0740 v. stem 0.0478 h(-1)), a very slow first order reversible flow from the ventral rumen to the raft (mean for leaf and stem 0.010 h(-1)) and a very rapid first order exit from the ventral rumen (mean of leaf and stem 0.44 h(-1)). The raft was calculated to occupy approximately 0.82 total rumen DM of the raft and ventral rumen pools. Fitting a sequential two pool model or a single exponential model individually to values from each of the two sampling sites yielded similar parameter values for both sites and faster rate parameters for leaf as compared with stem, in agreement with the raft model. These results were interpreted as indicating that the raft forms a large relatively inert pool within the rumen. Particles generated within the raft have difficulty escaping but once into the ventral rumen pool they escape quickly with a low probability of return to the raft. It was concluded that the raft model gave a good interpretation of the data and emphasized escape from and movement within the raft as important components of the residence time of leaf and stem particles within the rumen digesta of cattle.