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

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Author Info
Mehari Mekonnen Akalu () (Erasmus University Rotterdam)
Rodney Turner () (Erasmus University Rotterdam)
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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Publisher 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
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Handle: RePEc:dgr:uvatin:20020083

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

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Related research
Keywords: 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; Investment Policy
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 - - - Management of Technological Innovation and R&D

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  1. Moacyr Fioravante & Jorge Vianna Monteiro & Martin Shubik, 1971. "Models, Simulations and Games," Revista Brasileira de Economia, Graduate School of Economics, Getulio Vargas Foundation (Brazil), vol. 25(1), April.
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