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Journal articles on the topic 'Discounted Cash Flow'

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Published: 4 June 2021

Last updated: 31 January 2023

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1

Basovskiy, Leonid, and Elena Basovskaya. "Evaluation of the Effectiveness of Investment Projects that Generate Con-tinuous Cash Flows." Scientific Research and Development. Economics 10, no. 4 (August 19, 2022): 60–63. http://dx.doi.org/10.12737/2587-9111-2022-10-4-60-63.

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A methodology for evaluating the effectiveness of investment projects that gen-erate continuous cash flows, which are typical for the service sector and retail trade, has been developed and substantiated. Models of discounted cash flow (DCF) for projects that generate continuous cash flows are obtained and presented. The use of models illus-trated with a concrete example are given. It is shown that in short-term projects, with a high cost of capital and, accordingly, a high discount rate, the net present value of the discounted continuous cash flow is significantly higher than the net present value of the cash flow obtained under the assumption of a discrete flow. In some cases, this may lead to errors in assessing the effectiveness of investment projects and errors in the se-lection of projects, since their implementation leads to cash flows that do not belong to the end of each period, as is assumed in well-known methods, but are distributed in the course of periods.

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2

WIGGINS, C. DONALD. "Matching Cash Flows and Discount Rates in Discounted Cash Flow Appraisals." Business Valuation Review 18, no. 1 (March 1999): 26–35. http://dx.doi.org/10.5791/0882-2875-18.2.26.

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3

Mole, R. H. "The Cost of Capital for Financial Evaluation of Plant and Machinery Capital Proposals." Proceedings of the Institution of Mechanical Engineers, Part B: Journal of Engineering Manufacture 203, no. 1 (February 1989): 57–62. http://dx.doi.org/10.1243/pime_proc_1989_203_047_02.

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This paper makes the case for the close involvement of engineers in the financial appraisal of proposals for capital expenditure on plant and machinery. Post-tax assessments are now essential for the great majority of companies and this requires a coherent analytical framework which encompasses both the tax cash flows and the impact of tax upon the cost of capital in an inflationary environment. This paper deals with the impact of taxation upon the cost of capital, the discount rate and the yield (internal rate of return) which forms an essential component of modern methods of discounted cash flow financial appraisal. A companion paper considers tax cash flows and shows that the net present value discounted at the net cost of capital may be distorted in comparison to the pre-tax NPV discounted at the gross cost of capital.

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4

Gélinas, Patrice. "Discounted Cash Flow Model 2.0." Modern Economy 04, no. 12 (2013): 818–20. http://dx.doi.org/10.4236/me.2013.412087.

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5

Gajek, Lesław, and Łukasz Kuciński. "Complete discounted cash flow valuation." Insurance: Mathematics and Economics 73 (March 2017): 1–19. http://dx.doi.org/10.1016/j.insmatheco.2016.12.004.

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6

Kasper, Larry J. "S Corporation Valuations—An Analysis in Search of a Solution." Business Valuation Review 26, no. 4 (January 1, 2007): 127–36. http://dx.doi.org/10.5791/0882-2875-26.4.127.

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Abstract Until now, the approaches to valuing S corporations have focused on two main aspects: differences in tax rates for subchapter S and C corporations and the appropriate discount rates to use in valuing them. The problem lies with the fact that traditional earnings methods of valuation, including discounted cash flow, are faced with the dilemma of having a “pretax,” that is, untaxed, cash flow passed through to the S corporation shareholder that should be discounted at the post-corporate, but preshareholder, tax discount rate. Empirical evidence is critically reviewed herein.

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7

DRISSI, Ramzi. "An Empirical Analysis of the Valuation Methods of Unlisted Companies in Stock Exchanges." 14th GCBSS Proceeding 2022 14, no. 2 (December 28, 2022): 1. http://dx.doi.org/10.35609/gcbssproceeding.2022.2(34).

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This paper investigates the method for evaluating unlisted companies in stock exchanges via the discounted cash flow (DCF) valuation method. This method seeks to determine the company's value by estimating the cash flows it will generate in the future and then discounting them at a discount rate matched to the flows' risk. Nowadays, this method is generally used because it is the only conceptually correct valuation method. The study was conducted on companies in the Spanish olive oil industry during the period 2005-2020. The results suggest two values for valuing private companies: static and dynamic value. Both values are calculated based on the sum of the updated cash value plus the remaining value. Static value provides only one value, while dynamic provides a range of values, resulting in a more accurate understanding of a company's value and a better understanding of the risks associated with that value. Therefore, the company is considered a generator of cash flows, and the value of the company is determined by calculating the present value of these flows using an appropriate discount rate. The results show that determining the discount rate is one of the most important tasks given risk and historical volatility. In practice, the minimum discount rate is usually set by the relevant parties. Keywords: Cash Flow Discounted; Companies Unquoted; Valuation methods.

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8

Ivanovski, Zoran, Zoran Narasanov, and Nadica Ivanovska. "Performance Evaluation of Stocks’ Valuation Models at MSE." Economic and Regional Studies / Studia Ekonomiczne i Regionalne 11, no. 2 (June 1, 2018): 7–23. http://dx.doi.org/10.2478/ers-2018-0011.

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Abstract Subject and purpose of work: The main task of this paper is to examine the proximity of valuations generated by different valuation models to stock prices in order to investigate their reliability at Macedonian Stock Exchange (MSE) and to present alternative “scenario” methodology for discounted free cash flow to firm valuation. Materials and methods: By using publicly available data from MSE we are calculating stock prices with three stock valuation models: Discounted Free Cash Flow, Dividend Discount and Relative Valuation. Results: The evaluation of performance of three stock valuation models at the MSE identified that model of Price Multiplies (P/E and other profitability ratios) offer reliable stock values determination and lower level of price errors compared with the average stocks market prices. Conclusions: The Discounted Free Cash Flow (DCF) model provides values close to average market prices, while Dividend Discount (DDM) valuation model generally mispriced stocks at MSE. We suggest the use of DCF model combined with relative valuation models for accurate stocks’ values calculation at MSE.

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9

Gilbert, Gregory A. "Discounted-Cash-Flow Approach to Valuation." ICFA Continuing Education Series 1990, no. 2 (January 1990): 23–30. http://dx.doi.org/10.2469/cp.v1990.n2.4.

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10

French, Nick, and Laura Gabrielli. "Discounted cash flow: accounting for uncertainty." Journal of Property Investment & Finance 23, no. 1 (February 2005): 75–89. http://dx.doi.org/10.1108/14635780510575102.

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11

ROBINSON, JON. "DUAL RATE DISCOUNTED CASH FLOW ANALYSIS." Journal of Valuation 4, no. 2 (February 1986): 143–57. http://dx.doi.org/10.1108/eb007990.

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12

Khakzad, Hamid. "A framework for cost-benefit assessment of alternative sediment management strategies in Dez hydropower reservoir: A probabilistic approach." Water Practice and Technology 14, no. 4 (September 11, 2019): 783–801. http://dx.doi.org/10.2166/wpt.2019.063.

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Abstract A new theoretical approach to assessing the economic feasibility of sediment management strategies is proposed by incorporating probability distribution directly into the analysis. This would allow the life of Dez hydropower, for instance, to be prolonged definitely. The discount rate is also examined as a fundamental means of reflecting risk in discounted cash flow evaluations. Eight options for sediment management in Dez reservoir are assessed and future reservoir storage volumes estimated for the period 2018 to 2068. As a second step, discounted cash flow (DCF) with gamma discounting rate is used to evaluate present values for future cash flows for each option. The results indicate that these models, which offer an efficient approach, can be used to assess the cost-benefit feasibility of sediment management strategies. Guidelines are given for applying this approach to other projects.

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13

Solodov, A. A. "Stochastic Method of Discounted Cash Flows." Statistics and Economics 18, no. 1 (March 3, 2021): 67–74. http://dx.doi.org/10.21686/2500-3925-2021-1-67-74.

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The method of discounted cash flows (DCF) is one of the main and popular methods of economic assessment of business, which is used all over the world. However, the actual behavior of business projects evaluated by this method often differs from that predicted, and the difference can be tens of times.It should be noted that at present, the discounted cash flow method is a subject of extensive literature, but there are no analytical arguments for large discrepancies between the theory and practice of the method. The aim of the study is to provide a theoretical explanation of the forecasting errors inherent in the discounted cash flow method. The research method is related to the analysis of the traditional method of discounted cash flows, which shows that the key indicator that affects the final result is the net income for a certain period of time. Analyzing the economic content of the flows that appear in the formation of net income, we can conclude that for a trade-type enterprise, the cash flow of receipts associated with current operations is significantly random and, therefore, requires the use of stochastic description methods.The paper offers a mathematical model of the mentioned cash flow. It is assumed that the event associated with a purchase (cash receipt) is modeled on the time axis by a point with a random time of occurrence. Then, obviously, the number of points n that appear on a fixed time interval will be a random number. A justification is given for the fact that the point process is a Poisson random point process or simply a Poisson point process, in which the times of occurrence of points W1 ,W2 , ..., Wi and their number N(t) at time t are random variables. We introduce the function λ(t), which characterizes the average number of cash receipts (purchases) per unit of time. From an economic point of view, it is driven by consumer preferences of buyers, and from a mathematic point of view it is a function of the intensity of appearance of points of the Poisson process. The monetary values of purchases made by customers are described by random positive ui values which arise at the Wi moments of the occurrence of shopping events, simulate a random process of cash receipts at the enterprise.Introduction to the consideration of the random Poisson flow of business receipts and their values, which are also random positive values with an arbitrary probability distribution, is the key assumption of the work. The proposed approach allowed us to develop a stochastic model of the company’s revenues, generalize the method of discounted cash flows, obtain a number of simple ratios, and on this basis explain the growth of the method forecast error with an increase in the duration of the forecast horizon.New results of the study are the use of stochastic methods to describe business revenues and expressions obtained on this basis for the variance and standard deviation of the company’s net cash flow, depending on the number of forecasting periods. It is shown that the growth of the standard deviation of the net cash flow, i.e. the forecasting errors, is a fundamental feature of the method in this interpretation. For the initial estimates, a simple expression is obtained and corresponding graphs are given.In conclusion, it is noted that the presented graphs of the behavior of the standard deviation of the method estimates show that the estimate from below of the mentioned deviation slowly grows with an increase in the number of prediction periods and depends only on the number of periods. It is noted that this growth is calculated in relation to the first forecast period, which itself may contain errors, and it is determined only by consumer preferences. Of course, you can choose the forecast period not a month, but, for example, a year, but then the error of the first period will be significantly increased. Thus, this review makes it possible to explain some aspects of the growth of the error of the discounted cash flow method with the forecast time.

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14

Su, Chao-Ton, and Cheng-Wang Lin. "Production inventory policy under a discounted cash flow." Yugoslav Journal of Operations Research 15, no. 2 (2005): 289–300. http://dx.doi.org/10.2298/yjor0502289s.

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This paper presents an extended production inventory model in which the production rate at any instant depends on the demand and the inventory level. The effects of the time value of money are incorporated into the model. The demand rate is a linear function of time for the scheduling period. The proposed model can assist managers in economically controlling production systems under the condition of considering a discounted cash flow. A simple algorithm computing the optimal production-scheduling period is developed. Several particular cases of the model are briefly discussed. Through numerical example, sensitive analyses are carried out to examine the effect of the parameters. Results show that the discount rate parameter and the inventory holding cost have a significant impact on the proposed model.

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15

Valach, Josef. "Usual Errors Evaluation of Investment Projects with Discounted Cash Flow Method." Český finanční a účetní časopis 2008, no. 2 (June 1, 2008): 21–30. http://dx.doi.org/10.18267/j.cfuc.266.

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16

Grabowski, Roger J. "Comparing Growth Rates Used in Discounted Cash Flow Valuations." Business Valuation Review 40, no. 1 (January 1, 2021): 2–12. http://dx.doi.org/10.5791/20-00007.1.

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Estimating growth in net cash flows is one of the key components in applying the discounted cash flow (DCF) method in valuing any company, reporting unit, or other business unit. This paper explains the underlying assumptions of the DCF method and demonstrates how to compare the most commonly used basis for estimating net cash flows (sometimes referred to as free cash flows), expected organic growth, to historic estimates of growth of the subject company and estimates of earning growth commonly prepared by security analysts.

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17

Schauten, Marc, Rudolf Stegink, and Gijs de Graaff. "The discount rate for discounted cash flow valuations of intangible assets." Managerial Finance 36, no. 9 (August 10, 2010): 799–811. http://dx.doi.org/10.1108/03074351011064663.

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18

Janiszewski, Sławomir. "How to Perform Discounted Cash Flow Valuation?" Foundations of Management 3, no. 1 (January 1, 2011): 81–96. http://dx.doi.org/10.2478/v10238-012-0037-4.

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How to Perform Discounted Cash Flow Valuation?Within the last few decades the quickly accelerating globalization processes contributed to rapid increase in the value of the global capital markets, and mergers and acquisitions transactions. This implicated the rising importance of methodologies that enable investors to efficiently value the companies. The aim of this elaboration is to present practical approach towards the discounted cash flow company valuation method, considered one of the most effective but simultaneously one of the most sophisticated among all. The article comprises purely theoretical as well as practical knowledge, based on the author's broad professional experiences.

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19

Gilman, John J. "The Critical Importance Of Discounted Cash Flow." Materials Technology 21, no. 1 (June 2006): 5–6. http://dx.doi.org/10.1179/mte.2006.21.1.5.

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20

Pugh, Philip, and Valerie Pugh. "DCF (Discounted Cash Flow) - Friend or Foe?" Journal of Parametrics 10, no. 4 (December 1990): 1–11. http://dx.doi.org/10.1080/10157891.1990.10462493.

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21

Carter, Tony, and Demissew Diro Ejara. "Value innovation management and discounted cash flow." Management Decision 46, no. 1 (February 8, 2008): 58–76. http://dx.doi.org/10.1108/00251740810846743.

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22

HENRIQUE POLICARPO NEVES, MARCOS. "AVALIAÇÃO FINANCEIRA ATRAVÉS DA FERRAMENTA VALUATION, PELO MÉTODO DO FLUXO DE CAIXA DESCONTADO, NO BANCO DE CAPITAL ABERTO ITAÚ UNIBANCO HOLDING S.A." Revista Científica Semana Acadêmica 9, no. 205 (September 17, 2021): 1–17. http://dx.doi.org/10.35265/2236-6717-205-9171.

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The valuation process of companies is essential for investors to estimate the fair value of a company. Once it has been established, it is possible to compare with the market value and thus judge whether an asset is cheap, fair or expensive. There are several methodologies for calculating the valuation of a company, among which the following stand out: method of market multiples; discounted cash flow method; method based on the book value. In this sense, the present work aims to evaluate the fair price of the shares of Itaú Unibanco bank (ITUB4) through the discounted cash flow method. For this, data about the company were used from the balance sheet and the statement of income for the year, made available on the internet by the bank. After these data analyzes and the establishment of some assumptions, the cash flow for the next 10 years was projected. From this, the flows were brought to present value, to calculate the fair price of the company's shares, using an appropriate discount rate. As a final result, the model indicates that the shares are undervalued by the market, that is, they are cheap and with a growth potential of 32%.

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23

Jaunzeme, Justine Sophia. "Combining Environmental and Spatial Discount Rates for Valuation of Assets According to International Financial Reporting Standards." Economics and Culture 13, no. 1 (June 1, 2016): 14–20. http://dx.doi.org/10.1515/jec-2016-0002.

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Abstract Application of discount rate in finance and accounting is founded on the concept of time value of money. Discounted cash flow model is widely used for asset valuation under the International Financial Reporting Standards (in abbreviation, IFRS). The discount rate applied in valuation models normally is the best rate of return that investors would earn alternative investments. With emergence of ecological economics as a separate branch of economics, the concept of ecological (or in other words, environmental discount rate) has been elaborated. Muller (2013) in his paper ‘The Discounting Confusion: an Ecological Economics Perspective’, argues that traditional discounting can undermine long-term sustainability of the economy. In his work, Frank G. Muller considered adjusting the traditional discount rate in order to arrive at an environmental discount rate, which would help to ensure the sustainability of the economy. Hannon (2001) and Perrings (2001) in their paper ‘An Introduction to Spatial Discounting’ consider another variation of the discount rate - spatial discount rate. Spatial discount rate represents the rate at which the diffusion of environmental effects of economic activities is discounted over space. By February 2016, neither the application of environmental nor spatial discount rates under IFRS has been considered. The purpose of this paper is to analyse the implications that environmental and spatial discounting would have for the application of discounted cash flow model according to IFRS. The research methods applied are methods of economic analysis and synthesis.

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Karminsky, A., and E. Frolova. "Methods of Bank Valuation in the Age of Globalization." MGIMO Review of International Relations, no. 3(42) (June 28, 2015): 173–83. http://dx.doi.org/10.24833/2071-8160-2015-3-42-173-183.

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This paper reviews the theory ofvalue-based management at the commercial bank and the main valuation methods in the age of globalization. The paper identifies five main factors that significantly influence valuation models selection and building: funding, liquidity, risks, exogenous factors and the capital cushion. It is shown that valuation models can be classified depending on underlying cash flows. Particular attention is paid to models based on potentially available cash flows (Discounted cash flow-oriented approaches, DCF) and models based on residual income flows (Residual income-oriented approaches). In addition, we consider an alternative approach based on comparison with same sector banks (based on multiples). For bank valuation equity discounted сash flow method is recommended (Equity DCF). Equity DCF values equity value of a bank directly by discounting cash flows to equity at the cost of equity (Capital Asset Pricing Model, CAPM), rather than at the weighted average cost of capital (WACC). For the purposes of operational management residual income-oriented approaches are recommended for use, because they are better aligned with the process of internal planning and forecasting in banks. For strategic management residual income-oriented methods most useful when expected cash flows are negative throughout the forecast period. Discounted сash flow-oriented approaches are preferable when expected cash flows have positive values and needs for models using is motivated by supporting the investment decisions. Proposed classification can be developed in interests of bank management tasks in the midterm in the age of globalization.

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KATO, KELLY. "Valuation Of “S” Corporations Discounted Cash Flow Method." Business Valuation Review 9, no. 4 (December 1990): 117–22. http://dx.doi.org/10.5791/0882-2875-9.4.117.

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26

Bondarchuk, Alina. "PROBLEMS BUSINESS VALUATION ENTERPRISES DISCOUNTED CASH FLOW METHOD." Drukerovskij vestnik, no. 1 (March 2015): 142–46. http://dx.doi.org/10.17213/2312-6469-2015-1-142-146.

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27

Singh, J., and Shigufta Uzma. "Issues in relation to discounted cash flow valuation." American Journal of Social and Management Sciences 1, no. 1 (September 2010): 55–66. http://dx.doi.org/10.5251/ajsms.2010.1.1.55.66.

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28

Kishore, Rohit. "Discounted cash flow analysis in property investment valuations." Journal of Property Valuation and Investment 14, no. 3 (August 1996): 63–70. http://dx.doi.org/10.1108/14635789610118280.

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29

Ali, Maged, Ramzi El Haddadeh, Tillal Eldabi, and Ebrahim Mansour. "Simulation discounted cash flow valuation for internet companies." International Journal of Business Information Systems 6, no. 1 (2010): 18. http://dx.doi.org/10.1504/ijbis.2010.034002.

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30

Sinclair, David R. "Discounted cash flow of anesthesia information management systems." Journal of Clinical Anesthesia 24, no. 7 (November 2012): 603–4. http://dx.doi.org/10.1016/j.jclinane.2012.01.003.

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31

Klimek, M., and P. Łebkowski. "Heuristics for project scheduling with discounted cash flows optimisation." Bulletin of the Polish Academy of Sciences Technical Sciences 63, no. 3 (September 1, 2015): 613–22. http://dx.doi.org/10.1515/bpasts-2015-0072.

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Abstract The article presents the resource-constrained project scheduling problem with the maximisation of discounted cash flows from the contractor’s perspective: with cash outflows related to starting individual activities and with cash inflows for completing project stages (milestones). The authors propose algorithms for improving a forward active schedule by iterative one-unit right shifts of activities, taking into account different resource flow networks. To illustrate the algorithms and problem, a numerical example is presented. Finally, the algorithms are tested using standard test problems with additionally defined cash flows and contractual milestones.

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32

French, Nick. "The discounted cash flow model for property valuations: quarterly cash flows." Journal of Property Investment & Finance 31, no. 2 (March 2013): 208–12. http://dx.doi.org/10.1108/14635781311302618.

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33

Panigrahi, Ashok, Kushal Vachhani, and Mohit Sisodia. "Application of discounted cash flow model valuation: The case of Excide industries." Journal of Management Research and Analysis 8, no. 4 (December 15, 2021): 170–79. http://dx.doi.org/10.18231/j.jmra.2021.034.

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Theoretical and practical features of the widely used discounted cash flow (DCF) valuation approach are examined in depth in this paper. This research evaluates Exide Industries by using the DCF Valuation technique. It is widely accepted that the discounted cash flow approach is an effective tool for analyzing the situation of an organization even in the most complicated circumstances. The DCF approach, on the other hand, is prone to huge assumption bias, and even little modifications in an analysis' underlying assumptions may substantially affect the valuation findings. As a result, of the sensitivity analysis, we discovered bullish, base, and worst-case scenarios with target share prices of Rs. 253.25, Rs. 171.37, and Rs.133.25, respectively, by adjusting growth and WACC (Weighted-Average Cost of Capital) values.

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Zhukov, P. E. "New Models for Analyzing Changes in Company Value Based on Stochastic Discount Rates." Finance: Theory and Practice 23, no. 3 (June 25, 2019): 35–48. http://dx.doi.org/10.26794/2587-5671-2019-23-3-35-48.

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We propose new models for analyzing changes in the value of the company using stochastic discount rates. It is shown that for the majority of the companies under study, local changes in the rate of the company value growth (percentage changes to the previous level) are not explained by the corresponding changes neither in the weighted average cost of capital (WACC), nor in the cash flows. This fact, as well as the research results by J. Cochrane, who proved that discount rates volatility is the main contributor to price volatility, became initial prerequisites for building models based on stochastic discount rates. The work presents three models built on stochastic discount rates, where cash flows are assumed to be growing with a certain trend, and the factors affecting the price of the company are described by stochastic discount factors. These models are alternative in relation to the commonly used traditional cash flow discounting (DCF) models where the free cash flow is discounted through the WACC, or the free flow to capital at the opportunity cost of equity. The first model is used to analyze the dependence of the company value on investments. It uses free cash flow subject to zero growth. The second model uses net cash flow from operating activities plus interest, minus the minimum investment subject to zero growth. The third model uses net cash flow from operating activities plus interest adjusted to taxes. This model requires to estimate the rates of the company downsizing subject to zero investment. The third model is applicable for companies with volatile investments, where it is difficult to reliably estimate free cash flow in case of zero growth. The models are designed for analysis of the factors influencing the value of the company for value-based management. Another application of the models is the evaluation of investment value of the company and the answer to the question of its possible overestimated or underestimated value. The third way to apply this model is the empirical evaluation of the weighted average cost of capital applicable to the company’s investment projects, alternative to WACC, assessed by standard methods.

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Silva, Joao Carlos Marques, and José Azevedo Pereira. "Taking the highway out: exiting the stock market to maximize results." CASE Journal 18, no. 2 (December 29, 2021): 170–219. http://dx.doi.org/10.1108/tcj-01-2021-0020.

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Theoretical basis The essence of discounted cash flow valuation is simple; the asset is worth the expected cash flows it will generate, discounted to the reference date for the valuation exercise (normally, the day of the calculation). A survey article was written in Parker (1968), where it was stated that the earliest interest rate tables (use to discount value to the present) dated back to 1340. Works from Boulding (1935) and Keynes (1936) derived the IRR (Internal Rate of Return) for an investment. Samuelson (1937) compared the IRR and NPV (Net Present Value) approaches, arguing that rational investors should maximize NPV and not IRR. The previously mentioned works and the publication of Joel Dean’s reference book (Dean, 1951) on capital budgeting set the basis for the widespread use of the discounted cash flow approach into all business areas, aided by developments in portfolio theory. Nowadays, probably the model with more widespread use is the FCFE/FCFF (Free Cash Flow to Equity and Free Cash Flow to Firm) model. For simplification purposes, we will focus on the FCFE model, which basically is the FCF model’s version for the potential dividends. The focus is to value the business based on its dividends (potential or real), and thus care must be taken in order not to double count cash flows (this matter was treated in this case) and to assess what use is given to that excess cash flow – if it is invested wisely, what returns will come of them, how it is accounted for, etc. (Damodaran, 2006). The bridge to the FCFF model is straightforward; the FCFF includes FCFE and added cash that is owed to debtholders. References: Parker, R.H. (1968). “Discounted Cash Flow in Historical Perspective”, Journal of Accounting Research, v6, pp58-71. Boulding, K.E. (1935). “The Theory of a Single Investment”, Quarterly Journal of Economics, v49, pp479-494. Keynes, J. M. (1936). “The General Theory of Employment”, Macmillan, London. Samuelson, P. (1937). “Some Aspects of the Pure Theory of Capital”, Quarterly Journal of Economics, v51, pp. 469–496. Dean, Joel. (1951). “Capital Budgeting”, Columbia University Press, New York. Damodaran, A. (2006). “Damodaran on Valuation”, Second Edition, John Wiley and Sons, New York. Research methodology All information is taken from public sources and with consented company interviews. Case overview/synopsis Opportunities for value creation may be found in awkward and difficult circumstances. Good strategic thinking and ability to act swiftly are usually crucial to be able to take advantage of such tough environments. Amidst a country-wide economic crisis and general disbelief, José de Mello Group (JMG) saw one of its main assets’ (Brisa Highways) market value tumble down to unforeseen figures and was forced to act on it. Brisa’s main partners were eager in overpowering JMG’s control of the company, and outside pressure from Deutsche Bank was rising, due to the use of Brisa’s shares as collateral. JMG would have to revise its strategy and see if Brisa was worth fighting for; the market implicit assessment about the company’s prospects was very penalizing, but JMG’s predictions on Brisa’s future performance indicated that this could be an investment opportunity. Would it be wise to bet against the market? Complexity academic level This study is excellent for finance and strategy courses, at both undergraduate and graduate levels. Company valuation and corporate strategy are required.

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Becker, Denis Mike. "Getting the valuation formulas right when it comes to annuities." Managerial Finance 48, no. 3 (January 6, 2022): 470–99. http://dx.doi.org/10.1108/mf-03-2021-0135.

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PurposeThe purpose of this paper is to establish the flow-to-equity method, the free cash flow (FCF) method, the adjusted present value method and the relationships between these methods when the FCF appears as an annuity. More specifically, we depart from the two most widely used evaluation settings. The first setting is that of Modigliani and Miller who based their analysis on a stationary FCF. The second setting is that of Miles and Ezzell who worked with an FCF that represents an autoregressive possess of first order.Design/methodology/approachInspired by recent observations in the literature concerning cash flows, discount rates and values in discounted cash flow (DCF) methods, we mathematically derive DCF valuation formulas for annuities.FindingsThe following relationships are established: (a) the correct discount rate of the tax shield when the free cash flow takes the form of a first-order autoregressive annuity, (b) the direct valuation of the tax shield from the free cash flow for a first-order autoregressive annuity, (c) the correct translation from the required return on unlevered equity to the levered equity, when the free cash flow is a stationary annuity and (d) direct calculation of the unlevered and levered firm values and the value of the tax shield for a stationary annuity.Originality/valueUntil now the complete set of formulas for the valuation of stochastic annuities by different DCF methods has not been established in the literature. These formulas are developed here. These formulas are important for practitioners and academics when it comes to the valuation of cash flows of finite lifetime.

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Rajkumar, Aditya Vikram, and Jeffrey Williams. "Managing a Firm's Cash Flow Recovery Strategy." International Journal of Strategic Decision Sciences 3, no. 1 (January 2012): 60–80. http://dx.doi.org/10.4018/ijsds.2012010102.

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Traditional cash flow estimation techniques focus on generating net cash flow estimates period-by-period, which are then discounted by the firm’s cost of capital. While conceptually strong, this aggregation approach can be insensitive to the fine-grained detail so important to managing project cash flows, in particular, that investment returns are always a combination of growth (renewal) and decline (convergence) forces at work over the firm's life. As is demonstrated in this paper, the aggregation problem can be addressed by employing a cash flow recovery period (CFRP) framework, which distinguishes and quantifies the renewal and convergence forces unique to each firm's project cash flows. The benefit of this more fine-grained approach is that it provides an additional level of detail that can be used to manage firm returns.

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Li, Mengxiao. "Uber Future Value Prediction Using Discounted Cash Flow Model." American Journal of Industrial and Business Management 10, no. 01 (2020): 30–44. http://dx.doi.org/10.4236/ajibm.2020.101003.

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Uzma, Shigufta Hena, J. P. Singh, and Naveen Kumar. "Discounted Cash Flow and Its Implication on Intangible Valuation." Global Business Review 11, no. 3 (September 22, 2010): 365–77. http://dx.doi.org/10.1177/097215091001100304.

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Hasan, Mahmudul, Mengze Zhang, Weinan Wu, and Timothy A. G. Langrish. "Discounted cash flow analysis of greenhouse-type solar kilns." Renewable Energy 95 (September 2016): 404–12. http://dx.doi.org/10.1016/j.renene.2016.04.050.

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Soffer, Leonard C. "SFAS No. 123 Disclosures and Discounted Cash Flow Valuation." Accounting Horizons 14, no. 2 (June 1, 2000): 169–89. http://dx.doi.org/10.2308/acch.2000.14.2.169.

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One of the cornerstones of financial statement analysis is the discounted cash flow valuation. Despite the broad use of this valuation technique, and the economic importance of employee stock options to firm values, there is little guidance on how employee stock options should be incorporated in a valuation. This paper provides a comprehensive approach to doing so, including consideration of the income tax implications of option exercises, the simultaneity of equity and option valuation, and the use of the disclosures that were mandated recently by Statement of Financial Accounting Standards No. 123. The paper provides a comprehensive example using Microsoft's fiscal 1997 financial statements and employee stock option disclosure. This paper should be of interest to academics and practitioners involved in corporate valuation and financial statement analysis.

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Yao, Jing-Shing, Miao-Sheng Chen, and Huei-Wen Lin. "Valuation by using a fuzzy discounted cash flow model." Expert Systems with Applications 28, no. 2 (February 2005): 209–22. http://dx.doi.org/10.1016/j.eswa.2004.10.003.

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Sinclair, David R. "Capital budgeting decisions using the discounted cash flow method." Canadian Journal of Anesthesia/Journal canadien d'anesthésie 57, no. 7 (March 20, 2010): 704–5. http://dx.doi.org/10.1007/s12630-010-9304-6.

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Cornell, Bradford, and Richard Gerger. "Long-run Growth Rates in Discounted Cash Flow Models." Business Valuation Review 41, no. 3 (September 1, 2022): 91–94. http://dx.doi.org/10.5791/bvr-d-22-00008.

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Long-run growth rates play a central role in all discounted cash flow models. This is true whether the goal is to estimate the value of a company or to estimate the cost of equity. It is well recognized as a matter of mathematics—although not always incorporated into practice—that the long-run expected growth rate cannot exceed the growth rate of the aggregate economy. What is less widely appreciated is that as an empirical matter the long-run growth rates for existing companies (that is, companies that are being appraised or whose cost of equity is being estimated) are almost certain to be less than the growth rate of the aggregate economy. Based on analysis of net dilution from 1926 to 2017, a more reasonable approximation for the average long-run growth of existing companies is approximately two percentage points less than the expected nominal growth rate of GDP.

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Milanesi, G. S. "Fuzzy logic, parity theories and two currencies valuation for emerging markets with de discount cash flow model." Finance, Markets and Valuation 5, no. 1 (2019): 69–94. http://dx.doi.org/10.46503/dhiq4370.

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The discount cash flow model must incorporate, in emerging economic systems, a conceptual framework for the inflation and valuation in two currencies treatment. The start point are the parity theories and Fisher effect, adding fuzzy logic for project uncertainty variables: interest rates, inflation, exchange rates and quantities, becoming one of its main contributions. The structure of the paper as follows: they are developed the parity theories and model´s equation at the fuzzy logic framework. Its functioning is illustrated with case of a firm located in an emerging and inflationary economy like Argentina, using spreadsheets. Finally, the results obtained showed the consistency with the parity theories, adding fuzzy logic for the uncertainty treatment, at the comprehensive framework of discounted cash flow model in two currencies.

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Kaplan, Steven N., and Richard S. Ruback. "THE MARKET PRICING OF CASH FLOW FORECASTS: DISCOUNTED CASH FLOW VS. THE METHOD OF "COMPARABLES"." Journal of Applied Corporate Finance 8, no. 4 (January 1995): 45–60. http://dx.doi.org/10.1111/j.1745-6622.1995.tb00682.x.

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Kaplan, Steven N., and Richard S. Ruback. "THE MARKET PRICING OF CASH FLOW FORECASTS: DISCOUNTED CASH FLOW VS. THE METHOD OF "COMPARABLES"." Journal of Applied Corporate Finance 8, no. 4 (January 1996): 45–60. http://dx.doi.org/10.1111/j.1745-6622.1996.tb00682.x.

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Dzikevičius, Audrius, Edvard Michnevič, and Olga Ževžikova. "Stochastic Model of Business Evaluation." Verslas: teorija ir praktika 9, no. 3 (March 31, 2011): 229–36. http://dx.doi.org/10.3846/1648-0627.2008.9.229-236.

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Business (company) evaluation became a very important matter to Lithuania by now. Business evaluation is necessary for companies purchase or consolidation process analysis and for correct decision-making. The problem of business evaluation is analyzed in the paper. The paper examines discounted cash flow method for evaluation cash flow in the future discounted to the present value. Aspects of incorporation of risk measurement into the process of business evaluation are examined. Meanings of factors influencing the value are simulated using imitative technologies. The stochastic model of business evaluation is composed and researched in the article.

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Silva, Joao Marques, and Jose Azevedo Pereira. "Over-Valuation: Avoid Double Counting when Retaining Dividends in the FCFE Valuation." International Journal of Financial Research 8, no. 4 (September 11, 2017): 107. http://dx.doi.org/10.5430/ijfr.v8n4p107.

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Valuation based on DCF (Discounted Cash Flow) has been the dominant valuation procedure during the last decades. In spite of this dominance, enterprise valuation using the discounted FCF (Free Cash Flow) model has some practical drawbacks, since there is often some confusion on how to effectively use it. Commonly, the valuation procedures start by estimating future FCF figures from historical data, such as mean FCF, growth and retention ratio, alongside many other variables. These FCF forecasts are discounted at the cost of equity (FCFE – FCF to Equity) or the Weighted Average Cost of Capital WACC (FCFF – FCF to Firm). Implicit in the above mentioned valuation procedures is the expectation that the company puts the retained free cash that is generating to good use, yielding a value capable of rewarding appropriately the level of risk inherent in the way it used. Some poorly performed valuation studies however tend to double count (Damodaran, 2006a) the retained cash’s interest in subsequent values of FCF, or include the accumulated cash build-up in the Terminal Value. This paper discusses how these two common double-counting mistakes are made and evaluates their weight in the final valuation figure for the particular case of retained FCFE (the case for the FCFF is analogous, but we focus on FCFE for simplicity) using projected figures.

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French, Nick. "The discounted cash flow model for property valuations: quarterly in advance cash flows." Journal of Property Investment & Finance 31, no. 6 (September 20, 2013): 610–14. http://dx.doi.org/10.1108/jpif-06-2013-0030.

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