Estimating the Value of Financial Flexibility

Description
This model calculates the value of financial flexibility on an annualized basis. It an be used to determine if firms should maintain excess debt capacity.

The user has to input the following variables
1. Expected annual reinvestment needs as percent of firm value
2. Variance in annual expected reinvestment needs
3. Annual Reinvestment Needs that can be financed without financial flexibility (from internal funds or accessible external funds)
4. Riskless interest rate that corresponds to the life of the option
5. Current Cost of Capital
6. Excess Returns earned on Projects (ROC - Cost of Capital)

Note: this model is being shared with the authorization of Professor Aswath Damodaran from NYU Stern Business School (www.damodaran.com)