Multiply the EBITDA--which Rust calls "the nominal cash flow
of the business"--by a factor between 3.
First, the coupon payment for the conventional Treasury security, C, in the first term of equation (8), is a nominal cash flow that investors expect will compensate them for inflation via the Fisher hypothesis (and potentially for the taxation of inflation under the Darby and Feldstein framework).
The right-hand side of the equation can be interpreted as the present value of all after-tax nominal cash flows discounted by the after-tax nominal yield that provides the bond's price.
Reduction of the nominal cash flows
(income) will fuel economic slowdown, reduce business activities, tighten the debt problem gradually creating a banking crisis, says the economist.
This makes it a little tougher to match inflation-adjusted cash flows as efficiently as we matched the nominal cash flows
A conventional bond's nominal cash flows
are known in advance, so the nominal yield-to-maturity is calculated easily.
Thus real cash flows should be discounted at a real discount rate or nominal cash flows
should be discounted at a nominal rate.