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A CORPORATE FINANCE
CASH FLOW MODEL WITH FLOAT
Dr. Rodolfo Apreda
Ph.D. in Economics, University of Buenos Aires
Professor of Finance at The University of CEMA
Member of the Eastern Finance Association, United States
E-Mail : ra@cema.edu.ar
Abstract
In this paper we introduce a Cash Flow Model with Float so as to overcome apparent
shortcomings that pervade the Standard Cash Flow Model. We deploy the complex
structure the float exhibits and this allows not only for strategic financial decision
making but a much more sensible use of sources and applications of expected future
cash flows, as well. Furthermore, it provides with a method for building up floats. It is
a distinguishing feature in this model that uncovers agency problems and costs.
Besides, it gives grounds for a quantitative approach to free cash flows analysis. Prior
to introducing the model, however, we derive both the Statement of Cash Flows and
the Standard Cash Flow Model so as to weigh up their qualifications against the
model with float.
JEL: G30, G32, M40, M20
Key Words: Cash Flow, Float, Corporate Finance, Corporate Governance
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1.- INTRODUCTION
As the Standard Cash Flow Model is earning a place in latest Corporate Finance textbooks,
like Benninga <1997>, Ross <1996> or Damodaran <1997>, we can draw from this
development two remarks that commit to further analysis.
• The model is much better suited to Corporate Finance objectives than the Statement of
Cash Flows, the latter still so widely used in Accountancy.
• However, the model as it is usually presented doesn’t allow for financial decision
making because it depends of an exhaustive allocation of cash flows from assets into
main stakeholders accounts: debt and stock. We shall see that whereas this sort of
allocation is a tenet of the Statement of Cash Flows on ex_post basis, it doesn’t seem a
realistic allocation when we engage ourselves in forecasting expected future cash flows
on ex_ante basis.
What we want to do in this paper is to introduce the Cash Flow Model with Float, a model