Question

Explain the key simplifications / assumptions that need to be made in order to apply the...

Explain the key simplifications / assumptions that need to be made in order to apply the discounted cash flow (DCF) approach co the valuation of equity securities (stocks)


Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Below are main assumptions while using discounted cash flow:

  • All cash flows are treated as they occur at the end of the year irrespective of actual time of occurrence.
  • DCF methods treat cash flows associated with investment projects as they were known with certainty, whereas risk adjustments can be made in an NPV analysis to account for cash flow uncertainties.
  • Assume that all cash inflows are reinvested in other projects that earn monies for the company.
  • DCF analysis assumes a perfect capital market.
0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Ethical Actions Explain and apply consequentialist approaches Understand and explain the key elements of Ethical Egoism...
Ethical Actions Explain and apply consequentialist approaches Understand and explain the key elements of Ethical Egoism Describe Ethical Egoist view on co-operation and self-sacrifice Describe the key criticisms of an Ethical Egoist approach Understand and explain the key elements of Utilitarianism Ends / Consequentialist The test for classic utilitarianism: Maximum total utility or happiness/pleasure Describe the key criticisms of Utilitarianism for Business Law & Ethics
Please identify the physical principles and assumptions that you need to apply in order to solve...
Please identify the physical principles and assumptions that you need to apply in order to solve the problem. Outline the steps needed to solve the problem including all mathematical calculations you will need to make. One suggestion for storing energy generated by solar and wind energy created during off-peak hours is to store it as mechanical energy. One method would be to manufacture large flywheels that spin on nearly frictionless bearings. Consider a flywheel made of iron (density of 7.8...
1. Businesses need to invest cash in order to receive a return on investment for future...
1. Businesses need to invest cash in order to receive a return on investment for future cash flows. What tool(s) are used to analyze investment decisions made? 2. What is a discounted cash flow and why is it used?
What are free cash flows? Explain the difference between the company’s operating cash flow and it’s...
What are free cash flows? Explain the difference between the company’s operating cash flow and it’s free cash flow. Describe the key features of the free cash flow approach to valuation.
- Identify the physical principles and assumptions that you need to apply in order to solve...
- Identify the physical principles and assumptions that you need to apply in order to solve the problem. - Outline the steps needed to solve the problem including all mathematical calculations you will need to make. Make sure the numerical results allow you to answer the question posed. - Write explanatory language for all assumptions and mathematical steps and note all physical principles being applied during the solution. The Cosmoclock 21 Ferris wheel in Yokohama City, Japan, has a diameter...
You have been asked to perform a stock valuation prior to the annual shareholders meeting next...
You have been asked to perform a stock valuation prior to the annual shareholders meeting next week. The two models you have selected to value the firm are the dividend discount model and the discounted cash flow model. Explain why the estimates from the two valuation methods differ. Address the assumptions implicit in the models themselves as well as those you made during the valuation process.
The Free Cash Flows Valuation Approach. Explain the theory behind the free cash flow valuation approach....
The Free Cash Flows Valuation Approach. Explain the theory behind the free cash flow valuation approach. Why are the free cash flows value relevant to common equity shareholders when they are not cash flows to those shareholders, but rather are cash flows into the firm? Please keep your original post to under 100 words.
Per Block, Green Street Advisors uses a “valuation” method called “warranted share value”.  This Approach relies on...
Per Block, Green Street Advisors uses a “valuation” method called “warranted share value”.  This Approach relies on which valuation method as part of the process: DCF Gordon Growth Model NAV All of the Above Are AFFO numbers commonly found in the published financial statements of publicly traded REITs? Yes No The benefit of the discounted cash flow method in valuing a REIT is that an analyst or investor can derive this type of fair price: A relative number to be used...
You have been asked to perform and present a stock valuation to the CEO prior to...
You have been asked to perform and present a stock valuation to the CEO prior to the annual shareholders meeting next week. The two models you have selected to value the firm are the dividend discount model and the discounted cash flow model. Explain why the estimates from the two valuation methods differ. Address the assumptions implicit in the models themselves as well as those you made during the valuation process. Please include reference to back it up.
Instructions: Compare and contrast the terms contract and economic rents. Explain the concept of discounted cash...
Instructions: Compare and contrast the terms contract and economic rents. Explain the concept of discounted cash flow valuation and income capitalization rates. Using the internet, try to find at least five commercial properties for sale that would usually be valued with a very heavy weight for the income approach. Determine what type of information on income and expenses is provided. Can you find a web site with sufficient information to use the income related valuation techniques? If so, what is...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT