Valuation when cash flow forecasts are biased
By: Richard S. Ruback
Contributors: Harvard Business School
Series: Working paper / Harvard Business School -- 11-036; Working paper (Harvard Business School) -- 11-036.
Publisher: Harvard Business School
Published: 2010
Place of publication: [Boston]
Language: eng
Number of pages: 30
Description: This paper focuses adaptations to the discount cash flow (DCF) method when valuing forecasted cash flows that are biased measures of expected cash flows. I imagine a simple setting where the expected cash flows equal the forecasted cash flows plus an omitted downside. When the omitted downside is temporary, the adjustment is to deflate the forecasts and to set the discount rate equal to the cost of capital. However, when the downside is permanent, the adjustment is to deflate the cash flows and to increase the discount rate so that it includes the cost of capital plus the probability of a downside.
Notes: "October 2010"--Publisher's website.

Includes bibliographical references.