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A Monte Carlo Comparison between the Free Cash Flow and Discounted Cash Flow Approaches

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  • Mehari Mekonnen Akalu

    ()
    (Erasmus University Rotterdam)

  • Rodney Turner

    ()
    (Erasmus University Rotterdam)

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    Abstract

    One of the debates in the capital budgeting model selection is between the free cash flow and DCF methods. In this paper an attempt is made to compare SVA against NPV model based on Monte Carlo simulations. Accordingly, NPV is found less sensitive to value driver variations and has got higher forecast errors as compared to SVA model.

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    File URL: http://papers.tinbergen.nl/02083.pdf
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    Bibliographic Info

    Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 02-083/1.

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    Date of creation: 20 Aug 2002
    Date of revision:
    Handle: RePEc:dgr:uvatin:20020083

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    Web page: http://www.tinbergen.nl

    Related research

    Keywords: Capital budgeting; Investment appraisal; DCF methods; Project Analysis; Shareholder Value Analysis; Value Management Techniques.;

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