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The Six-Minute Guide to Making Better High-Stakes Decisions

Harvard Business Review

When making big decisions, executives use familiar tools like discounted cash flow analysis far too often. That’s because the more uncertain a business context is, the less likely running some numbers and probabilities through a spreadsheet will be helpful.

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Why You Should Crowd-Source Your Toughest Investment Decisions

Harvard Business Review

Most companies – including the movie studios in Hollywood – over-rely on basic tools like discounted cash flow and net present value. But it is possible to significantly improve your odds by understanding which decision-support tools work best for which decisions.

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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. Rather, they rely on internal rates of return and multiples of invested capital.

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The Largest Risk (and Opportunity) Investors Are Ignoring

Harvard Business Review

As Nick Robins from the bank HSBC described to the audience, in a scenario of global peak fossil fuel use by 2020 “implies a 44% reduction in discounted cash flow value of fossil fuel companies” — or in simpler terms, a decline in share price of 40 to 60 percent. coal market.

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How Corporate Investors Can Improve Their Odds

Harvard Business Review

Ideas with positive discounted cash flows get investment. One – possibly more promising — receives one more round of funding. Three companies end up taking 60% of all investment dollars. By contrast, for corporate innovators each idea needs to carry its own weight. Those that don’t, don’t.

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Can We Quantify the Value of Connected Devices?

Harvard Business Review

Combining these creates a P&L and a projection, which through a discounted cash flow analysis yields an NPV, which can be used to assess valuation. On the cost side, what’s the sourcing cost, the production cost, and the distribution cost? Which of these are ongoing, and which are one-off?

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Still Many Ways to Skin a Capital Cost

Harvard Business Review

Estimating the rate at which to discount the cash flows — the cost of equity capital — is an integral part of the exercise, and the choice of rate has a significant effect on estimates of a project's or a company's value. billion.

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