There’s no point in forecasting individual cash flows it’s bad enough for casting for five years you know I’m not going to carry on forecasting something in my eye – years time I’m just going to say I reckon the company will generate a certain lump of money for the root for its remaining life and I discount that back in one gits cool the terminal value and that’s all I’m gonna say about in this videos underneath.
That out here its part number one problem how good our forecasts in the first place good question forecasting cash flows is hardball right and if you make a mistake in the early years it radically changes the value come out with down here problem number two I didn’t say DC was easy or. accurate problem number three screaming at you I default is well enough did you can talk some sense why not and the answer that is people to scratch their heads long and hard about where to get him several the -percent reflects a number of things.
The riskier you think this business is the higher that number will be the higher the value of other opportunities if you can put your money into a bank account that paid a decent interest rate you want even more for investing in risky company that pushes the right up potentially as Lowell liquidity how easy is it going to be to get these cash flows out the company all these things affect ten percent and there are various models with your won’t go into today one of them school the capital asset pricing model investors used to come up with a rate reflects the risk potentially associated with these cash flows from this particular company alright.
so there you have it well what you have exactly what you have is technique that looks quite scientific she done in full and gives you a number of good friends and a million but I leaving companies is an easy-there’s no foolproof scientific method it requires you to make quite a few assumptions that requires you to do forecasting required to come up with the right interest rate or require you to have it add everything up.
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