Abstract

http://ssrn.com/abstract=5447
 
 

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The Valuation of Cash Flow Forecasts: An Empirical Analysis


Steven N. Kaplan


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Richard S. Ruback


Harvard Business School

July 1994


Abstract:     
This paper compares the market value of highly leveraged transactions (HLTs) to the discounted value of their corresponding cash flow forecasts. These forecasts are provided by management to investors and shareholders in 51 HLTs completed between 1983 and 1989. Our estimates of discounted cash flows are within 10%, on average, of the market values of the completed transactions. Our estimates perform at least as well as valuation methods using comparable companies and transactions. We also invert our analysis and estimate the risk premium implied by transaction values and forecast cash flows, and the relation of the implied risk premium to firm-level betas, industry-level betas, firm size, and firm book-to-market ratios.

JEL Classification: G30, G31, G32

working papers series


Not Available For Download

Date posted: August 8, 1994  

Suggested Citation

Kaplan, Steven N. and Ruback, Richard S., The Valuation of Cash Flow Forecasts: An Empirical Analysis (July 1994). Available at SSRN: http://ssrn.com/abstract=5447

Contact Information

Steven Neil Kaplan (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-4513 (Phone)
773-702-0458 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Richard S. Ruback
Harvard Business School ( email )
Boston, MA 02163
United States
617-495-6422 (Phone)
617-496-8443 (Fax)
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