Valuing Companies by Discounted Cash Flows
International Journal of Management (IJM), International Association for Engineering and Management Education, Vol. 4, Issue 2, 2013
16 Pages Posted: 5 Jul 2013
Date Written: July 3, 2013
This paper shows valuation methods based on equity cash flow; free cash flow; capital cash flow; APV (Adjusted Present Value); business's risk-adjusted free cash flow and equity cash flow; risk-free rate-adjusted free cash flow and equity cash flow; economic profit; and EVA.
All 10 methods always give the same value. This result is logical, as all the methods analyze the same reality under the same hypotheses; they differ only in the cash flows or parameters taken as the starting point for the valuation.
We present all ten methods, allowing the required return to debt to be different from the cost of debt. Seven methods require an iterative process. Only the APV and business risk-adjusted cash flows methods do not require iteration.
Keywords: Valuation, DCF, Discounting, Cash Flow, WACC, Free Cash Flow
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