Using Discounted Cash Flow Analysis in an International Setting: A Survey of Issues in Modeling the Cost of Capital

CFA Digest ◽  
1999 ◽  
Vol 29 (3) ◽  
pp. 75-77
Author(s):  
Joseph Vu
Keyword(s):  
Cash Flow ◽  
Cost Of Capital ◽  
Flow Analysis ◽  
Discounted Cash Flow ◽  
International Setting ◽  
The Cost

scholarly journals Certainty equivalent coefficients and capital budgeting: A caveat

1993 ◽  
Vol 24 (4) ◽  
pp. 130-133
Author(s):  
S. Paulo
Keyword(s):  
Cash Flow ◽  
Net Present Value ◽  
Flow Analysis ◽  
Capital Budgeting ◽  
Technical Note ◽  
Certainty Equivalent ◽  
Present Value ◽  
Discounted Cash Flow ◽  
Important Principle ◽  
The Cost

The purpose of this technical note is to draw attention to the problems which are inherent in the use of certainty equivalent coefficients as an approach to incorporating risk into capital budgeting. More specifically, the certainty equivalent coefficient net present value criterion violates an important principle of cash flow determination for discounted cash flow analysis. Further, this approach precludes the use of net present value profiles which are pivotal when evaluating conflicts among mutually exclusive projects. In addition, use of certainty coefficient equivalents amounts to an acknowledgement that the concept, function and use of the cost of capital is improperly understood.

Profitability, risk and cash flow deficit for beginning cow–calf producers

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Carlos J.O. Trejo-Pech ◽  
Jared Bruhin ◽  
Christopher N. Boyer ◽  
S. Aaron Smith
Keyword(s):  
Cash Flow ◽  
Opportunity Cost ◽  
Net Present Value ◽  
Cost Of Capital ◽  
Herd Size ◽  
Discounted Cash Flow ◽  
Production Risk ◽  
Content Type ◽  
Market Values ◽  
Cow Calf

PurposeThe purpose of this study is to estimate the amount of cash flow deficit, if any, needed to maintain the operating costs and service debt of a startup cow–calf enterprise. The study compares long-term profitability and risk between starting small and building a herd to full carrying capacity or by starting at desired herd capacity.Design/methodology/approachA dynamic cattle growth model was developed to capture expanding and maintaining the desired herd size. Discounted cash flow (DCF) models over a 15-year period were calculated to estimate net present value (NPV), modified internal rate of return (MIRR) and cash flow deficit to keep the business operating and service debt. Simulation analyses were conducted considering price and production risk.FindingsStarting at the desired herd size was preferred, according to NPV/MIRR and cash flow deficit, but the differences were not substantial. Assuming the operation is liquidated at book values, there was a 36.3% probability of this enterprise having a zero or positive NPV. If the conservative terminal value assumption is relaxed up to feasible market values, the cow–calf enterprise is economically attractive at an estimated 2.4% opportunity cost of capital. However, the producer would experience a cash flow deficit during the first seven years, which was simulated to be $14,892 and $15,985 annual for both strategies.Originality/valueInnovative methods used in this study include varying the annual opportunity cost of capital as a function of financing decisions, stochastic prices by cattle type and stochastic weaning weights that are a function of a dynamic cattle model.

Manufacturer's pricing and lot-sizing decisions for perishable goods under various payment terms by a discounted cash flow analysis

2019 ◽  
Vol 218 ◽  
pp. 83-95 ◽  
Author(s):  
Chun-Tao Chang ◽  
Liang-Yuh Ouyang ◽  
Jinn-Tsair Teng ◽  
Kuei-Kuei Lai ◽  
Leopoldo Eduardo Cárdenas-Barrón
Keyword(s):  
Cash Flow ◽  
Lot Sizing ◽  
Flow Analysis ◽  
Discounted Cash Flow ◽  
Perishable Goods

Methodologies and Techniques for Determining the Value of an Aircraft

2020 ◽  
pp. 036119812095841
Author(s):  
Bijan Vasigh ◽  
Farshid Azadian ◽  
Kamran Moghaddam
Keyword(s):  
Cash Flow ◽  
Flow Analysis ◽  
Operating Costs ◽  
Asset Valuation ◽  
Discounted Cash Flow ◽  
Valuation Model ◽  
Exogenous Factors ◽  
New Generation ◽  
Operating Revenue

Aircraft valuation and the estimation of an accurate aircraft price is undoubtedly a challenging task that has significant consequences for airlines. This paper presents an asset valuation model to show how a series of endogenous as well as exogenous factors can influence the value of an aircraft. Specifically, a discounted cash flow methodology is used to forecast the valuation of an old or new generation aircraft. Both total operating revenue and aircraft operating costs are taken into account to devise a reliable pre-tax profit measurement that is used as the basis of the discounted cash flow analysis. A sensitivity analysis based on Monte Carlo simulation is utilized to identify which factors have a more significant influence on the suggested aircraft value. Therefore, it addresses how value fluctuates in response to economic fluctuations. Indeed, the calculated value of an aircraft highly depends on the underlying assumptions used. The calculated value is compared with available data in a case study for verification.

Choice data generation using usage scenarios and discounted cash flow analysis

2020 ◽  
Vol 37 ◽  
pp. 100250
Author(s):  
Ungki Lee ◽  
Namwoo Kang ◽  
Ikjin Lee
Keyword(s):  
Cash Flow ◽  
Flow Analysis ◽  
Data Generation ◽  
Choice Data ◽  
Discounted Cash Flow
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