Most discounted cash flow valuations involve using cash flows: a. historical period, an explicit forecast period,...

Most discounted cash flow valuations involve using cash flows:

a. historical period, an explicit forecast period, and a terminal value

b. historical period and a terminal value

c. historical period and an explicit forecast period

d. explicit forecast period and a terminal value

Expert Solution

Most discounted Cashflow valuations involve using Cash flow :

d) Explicit Forecast Period and a Terminal Value (✓)

While estimating Discounted Cashflow two major components 1) The Forecast Period 2) The terminal Value.

Discounted Cashflow is a valuation methods used to estimate the value of an investment based on its Future Cashflow.

Discounted Cashflow analysis assist to find out the value of an investment today,based on Projection of how much Money it will generate in the Future hence it is Explicit Forecast Period

The Forecast Period is typically 3-5years for a normal business (but can be much longer in some types of businesses) because this is a reasonable amount of time to make detailed assumption. Anything beyond that becomes a real guessing game, which is where the Terminal Value Comes in.

Historical period has no role in Discounted Cashflow valuations as this analysis is based on Future Valuation.

jeff jeffy answered 2 years ago

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