|
sudam charan behera
Manager, India
|
DCF Simple but has Weaknesses!
The DCF method is the simplest in use, but is a complete failure in measuring uncertainty and risk, so simulation and the real options method hold the key for those situations...
X
Sign up for free
Welcome to the Discounted Cash Flow forum of 12manage.
Here we exchange knowledge and experiences in the field of Discounted Cash Flow.
❗Sign up now to gain access to 12manage. Completely free.
X
Continue for free
Please sign up and login to continue reading.
Here we exchange knowledge and experiences in the field of Discounted Cash Flow.
❗Sign up now to gain access to 12manage. Completely free.
| |
|
|
| |
|
Nick Moore, United Kingdom
|
|
DCF is Simple and Practical. Real Options are Too Complex It is true that DCF on its own does not adequately show risk. But there are a number of methods that can be utilised in a DCF calculation to show risk:
1. Use an appropriate discount rate for the risk.
2. Use sensitivities.
3. Use Monte Carlo Analysis, although this is starting to get almost as complex as the valuation of real options, so is not practical for most business use.
At the end of the day, the DCF analysis gives one data point, and judgement should always be used, combined with other metrics (such as IRR) to determine if a project is good or bad.
|
| |
|
ANDREAS MAVROGENIS, Cyprus
|
|
Another DCF Disadvantage DCF analysis has another disadvantage: it is inaccurate in the long term, because of changes in the economy which will affect the calculations made.
|
|
|
|
|
More on Discounted Cash Flow
|
|
|
Log in
Comments by date▼