Discounted Cash Flow Valuation: The Inputs

1 Discounted cash flow valuation : Discounted cash flow valuation : The InputsThe InputsAswath Damodaran2 The Key Inputs in DCF ValuationThe Key Inputs in DCF ValuationlDiscount Rate Cost of Equity, in valuing equity Cost of Capital, in valuing the firmlCash flows Cash flows to Equity Cash flows to FirmlGrowth (to get future cash flows ) Growth in Equity Earnings Growth in Firm Earnings (Operating Income)3I. Estimating Discount RatesI. Estimating Discount RatesDCF Valuation4 Estimating Inputs : Discount RatesEstimating Inputs : Discount RateslCritical ingredient in Discounted cashflow valuation . Errors in estimating the discount rate or mismatching cashflows and discount rates can lead to serious errors in valuation . lAt an intuitive level, the discount rate used should be consistent with both the riskiness and the type of cashflow being Discounted .

Discounted Cash Flow Valuation: The Inputs Aswath Damodaran. 2 The Key Inputs in DCF Valuation ... is a zero coupon security with the same maturity as the cash flow being analyzed. 14 ... riskfree rate on all of the cash flows in a long term analysis will yield a close approximation of the true value.

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  Analysis, Flows, Sachs, Valuation, Discounted, Cash flow, Discounted cash flow valuation

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