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A Tutorial on the Discounted Cash Flow Model for Valuation of Companies

  • Jennergren, L. Peter


    (Dept. of Business Administration, Stockholm School of Economics)

All steps of the discounted cash flow model are outlined. Essential steps are: calculation of free cash flow, forecasting of future accounting data (income statements and balance sheets), and discounting of free cash flow. There is particular emphasis on forecasting those balance sheet items which relate to Property, Plant, and Equipment. There is an exemplifying valuation included (of a company called McKay), as an illustration. A number of other valuation models (abnormal earnings, adjusted present value, economic value added, and discounted dividends) are also discussed. Earlier versions of this working paper were entitled "A Tutorial on the McKinsey Model for Valuation of Companies".

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Paper provided by Stockholm School of Economics in its series SSE/EFI Working Paper Series in Business Administration with number 1.

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Length: 55 pages
Date of creation: 18 Jun 1998
Date of revision: 22 Jun 1999
Handle: RePEc:hhb:hastba:0001
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  1. Jennergren L. Peter, 2013. "Firm Valuation with Bankruptcy Risk," Journal of Business Valuation and Economic Loss Analysis, De Gruyter, vol. 8(1), pages 41, October.
  2. Jennergren L. Peter, 2010. "On the Forecasting of Net Property, Plant and Equipment and Depreciation in Firm Valuation by the Discounted Cash Flow Model," Journal of Business Valuation and Economic Loss Analysis, De Gruyter, vol. 5(1), pages 1-28, November.
  3. Richard S Ruback, 2002. "Capital Cash Flows: A Simple Approach to Valuing Risky Cash Flows," Financial Management, Financial Management Association, vol. 31(2), pages -, Summer.
  4. Jennergren L. Peter, 2011. "Approximate Firm Valuation with Operating Leases," Journal of Business Valuation and Economic Loss Analysis, De Gruyter, vol. 6(1), pages 1-22, September.
  5. Robert A. Taggart & Jr., 1991. "Consistent valuation and Cost of Capital Expressions With Corporate and Personal Taxes," Financial Management, Financial Management Association, vol. 20(3), pages -, Fall.
  6. Jennergren, L. Peter, 2008. "Continuing value in firm valuation by the discounted cash flow model," European Journal of Operational Research, Elsevier, vol. 185(3), pages 1548-1563, March.
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