A Monte Carlo Comparison between the Free Cash Flow and Discounted Cash Flow Approaches
AbstractOne 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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Bibliographic InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 02-083/1.
Date of creation: 20 Aug 2002
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Capital budgeting; Investment appraisal; DCF methods; Project Analysis; Shareholder Value Analysis; Value Management Techniques.;
Find related papers by JEL classification:
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
- L6 - Industrial Organization - - Industry Studies: Manufacturing
- L8 - Industrial Organization - - Industry Studies: Services
- L9 - Industrial Organization - - Industry Studies: Transportation and Utilities
- M10 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - General
- O22 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Project Analysis
- O32 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Management of Technological Innovation and R&D
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-12-02 (All new papers)
- NEP-CFN-2002-12-02 (Corporate Finance)
- NEP-CMP-2002-12-02 (Computational Economics)
- NEP-RMG-2002-12-02 (Risk Management)
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