Archive 2010-26: Discounted Cash Flow




Discounted Cash Flow: The Correct Way to Do It

Presented by

James R. Hitchner, CPA/ABV/CFF, ASA, Moderator
Jeff D. Balcombe, CPA/ABV/CFF, CFA, ASA, Panelist
Harold G. Martin, CPA/ABV/CFF, ASA, CFE, Panelist

Webinar 26 Original Broadcast Date: June 23, 2010

Learning Objectives:

The participant will learn:

  • The relationship of the components of both direct equity and invested capital cash flows
  • The appropriate ways to determine terminal value
  • Whether capital expenditures should equal or exceed depreciation/amortization
  • Whether debt proceeds should equal or exceed debt repayments
  • If risk should be reflected in the projected cash flows, the discount rate or both
  • The relationship of discount rates to the risk of achieving estimated future cash flows and the volatility of those cash flows
  • Updates on new sources and applications of both Ibbotson and Duff & Phelps data
  • How to develop and reconcile discount rates using Ibbotson and Duff & Phelps data
  • How to support short- and long-term growth rates
  • How to test their assumptions and results

Webinar Outline:

  • DCF: Trying to avoid the disconnected vs. discounted cash flow model
    • Common errors and problems
  • The real components of cash flow
    • Direct to equity vs. invested capital methods
    • Book depreciation vs. tax depreciation and deferred taxes
    • Should capital expenditures be the same or higher than depreciation?
    • Debt-inclusive and debt-exclusive working capital
    • Should new debt proceeds be the same or higher than debt repayments?
  • How to properly determine terminal value
    • Gordon Growth Model
    • Multiples of cash-flow method
    • Impact of explicit vs. implicit growth rates
    • Example testing the models/methods for accuracy
  • Should risk be reflected in the discount rate, the cash flows or both?
    • Example showing how the volatility of projections can impact value
  • Cost of capital
    • Overview of the latest data in Ibbotson and Duff & Phelps
    • How to apply and reconcile Ibbotson data and Duff & Phelps data
    • How to properly consider and apply industry risk premiums from Ibbotson and adapted for Duff & Phelps
    • Industry risk premium data reliability
    • The three traditional methods of determining specific company risk
    • The total beta model and the Butler Pinkerton calculator for calculating specific company risk

Included in this downloadable package are:

  • Audio/Video file
  • Webinar transcript
  • Webinar slides
  • Original Webinar handouts

The archived webinar package is an Adobe Presenter PDF file that allows you to view the video of the webinar with the synced audio so that you see the presentation just as it was presented “live.” The Presenter format also allows for easy navigation through the webinar so you can quickly go to a specific section in the presentation. The handout materials are included in the file. To view the Webinar Presenter file, you must have Adobe Reader software version 9 or higher. You can download the free current version of Adobe Reader at Please note that CPE is only available for live webinar broadcasts.

Additional information

Weight 0.00 oz