Still Many Ways to Skin a Capital Cost

Harvard Business Review

When executives evaluate a potential investment, whether it's to build a new plant, enter a new market, or acquire a company, they weigh its cost against the future cash flows they expect will spring from it. To make sure they're comparing apples to apples, they discount those future cash flows to arrive at their net present value. Not at all, he said, because it's "no secret that applying the CAPM is as much an art as financial science."

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Why Sit on All that Cash? Firms Uncertain on Cost of Capital

Harvard Business Review

With a record $2 trillion in cash and short-term liquid assets on hand, U.S. Fully 79 percent of companies, including 91 percent with annual revenues greater than $1 billion, use discounted cash flow techniques. There is less consistency, however, in how organizations estimate cash flows and determine the weighted average cost of capital at which those cash flows are discounted. Budgeting Finance Strategic planning CAPM

What Private Equity Investors Think They Do for the Companies They Buy

Harvard Business Review

For instance, despite the prominent role that discounted cash flow valuation methods play in academic finance courses, few PE investors use discounted cash flow or net present value techniques to evaluate investments. Furthermore, few PE investors explicitly use the capital asset price model (CAPM) to determine a cost of capital.