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."

DCF 12

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. This is the key finding of the Current Trends in Estimating and Applying the Cost of Capital research released this week by the Association for Financial Professionals, a trade group of 16,000 corporate treasury and finance practitioners. Fully 79 percent of companies, including 91 percent with annual revenues greater than $1 billion, use discounted cash flow techniques.

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

Harvard Business Review

In particular, we are interested in how many of their responses correlate with what academic finance knows and what it teaches. 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. the notion that debt financing can be “cheap” at certain times).

CAPM 10