Discounted Cash Flow Method Research Articles

Investment Feasibility Analysis Using Discounted Cash Flow Valuation Method (Case Study: Gold Mine in Pit A PT XYZ)

Investment in the mining sector carries a high risk, so a comprehensive financial evaluation is required to ensure project feasibility. This study assesses the financial feasibility of gold mining investment in Pit A, PT XYZ, for the period 2025 to 2036. The purpose of this study is to evaluate the feasibility of the project through the analysis of key financial indicators such as Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period (PBP) using the Discounted Cash Flow (DCF) method. The DCF method was chosen due to its ability to project future cash flows and incorporate them into a comprehensive assessment of the potential benefits and risks of the project. In addition, sensitivity analysis was conducted to see the effect of changes in important variables such as revenue, cost of goods sold (COGS), and capital expenditure (capex) on the financial results of the project. The results show that the project is financially viable, with a positive NPV of US$404.16 million, an IRR of 52.10%, and a PBP of 3.32 years, all of which indicate a strong return on investment. Further sensitivity analysis shows that the project remains robust under various scenarios of changes in key variables. This study contributes to the investment evaluation literature in the mining sector by offering a more integrated approach to addressing investment uncertainty and risk through the combined use of the DCF method and sensitivity analysis.

Investment Feasibility Analysis Of Resort X Development Project In Labuan Bajo Using Discounted Cash Flow And Monte Carlo Method

In general, tourist destinations in Labuan Bajo are synonymous with Komodo National Park which is one of the seven wonders of the world. This is the background for the developer to invest in the construction of resort X in Labuan Bajo. It is hoped that the X resort area can become an attraction for tourists in Labuan Bajo. In this study, a financial feasibility analysis was carried out to find out whether or not the investment to be made was feasible. The methods used are discounted cash flow (DCF) and Monte Carlo. The X resort construction project is built on an area of 113,396 m2 and is planned to build 263 units of shop houses and 1 unit of 4-star hotels as well as supporting buildings such as back of house (BOH) buildings, public toilets, floating libraries, arrival pavilions. The results of the analysis using the DCF method show a positive NPV value of Rp 87,895,000,000 and an IRR value of 17.66% greater than the Minimum Attractive Rate of Return (MARR) value of 10%, so that the project can be declared feasible to be implemented, as well as the Monte Carlo method which shows a positive NPV value of Rp 35,423,000,000 and an IRR value of 12.82% greater than the MARR value. Therefore, based on the results of the analysis of these two methods, the X resort project in Labuan Bajo can be declared feasible to be implemented.

Variation in the values of the beta coefficient for systematic risk depending on the approach applied on the example of companies from the WIG20 index

Purpose of the study: The beta coefficient for systematic risk can be obtained with various methods. Each of these methods may be methodologically correct and justified in the scientific literature, but the results obtained may differ. The aim of the article is to indicate differences in the estimated values of the beta coefficient for systematic risk caused by different methods of their calculation or different sources of data acquisition. Methodology: The article presents methods of calculating the beta coefficient for systematic risk and the most popular sources of obtaining this coefficient. Then, the beta ratio was calculated using the historical method for the period of 1, 2, 5 and 10 years for companies from the WIG20 index and beta indicators were obtained from the publications by A. Damodaran. On the basis of the obtained data, maximum divergences in beta coefficient values were determined and their mean value was calculated. Main findings: The results of the work indicate the average difference in beta values for companies from the WIG 20 index at the level of 0.51 and the maximum value of 1.12. Moreover, it was determined that statistically the lowest beta values as of December 31, 2023 for companies from the WIG20 index were provided by the historical method for a period of 2 years, and the highest values were provided by A. Damodaran. Application of the study: The conducted research indicates the range in which stock market analysts and valuation specialists can model the valuation value from the level of the beta coefficient. Market practitioners can choose both the highest and the lowest value and thus influence the value of the discount rate and the value of the company's valuation in the discounted cash flow method. Originality/Novelty of the study: The article presents original results of empirical research on the beta coefficient. This paper presents volatility in the values of the beta coefficient for systematic risk resulting from different methods of estimating it on the example of companies from the WIG20 index.

Company Valuation for 4PACT

4PACT, which was established in 2021, is an innovative startup operating in both the Food & beverage industry and the waste management industry. Its main objective is to address Sustainable Development Goal (SDG) number 12 by offering edible cutlery as a solution to reduce plastic waste and provide a distinctive value proposition to customers. At present, 4PACT has successfully developed and marketed edible straws as its initial product line, targeting primarily sustainable-minded cafes in the B2B market. These straws are manufactured primarily from rice flour and tapioca flour, resulting in fully biodegradable and consumable straws available in a variety of colors and sizes. The company has already established partnerships with several B2B clients, yielding positive net profits. However, 4PACT has encountered a period of stagnant growth. Consequently, this research endeavor aims to analyze the challenges faced by the company, propose viable solutions, and formulate a strategic plan to achieve optimal outcomes. This study will employ a quantitative methodology, leveraging internal company data, and employing the discounted cash flow method.

Investment Valuation of Long-Term Coal Mining Project at Pit J Using Discounted Cash Flow Method

Investment Valuation of Long-Term Coal Mining Project at Pit J Using Discounted Cash Flow Method

Using Real Options and Geometric Brownian Motion Methods to Evaluate Petroleum Projects in Indonesia

There are several methods for evaluating the value of a project. The most commonly used method is the Discounted Cash Flows (DCF) method which is more practical in its use. However, the DCF method still has several weaknesses, including not paying attention to the flexibility of the manager's decision-making when the project is carried out. The Real Options method enhances this by offering more flexible and varied models. This study uses Benninga's version of the binomial method to evaluate the value of petroleum projects with the characteristics of existing companies in Indonesia. In this study, oil prices are assumed to move following the Geometric Brownian Motion (GBM) model which is commonly used in modeling the movement of a fluctuating price. In addition, the author also modifies the binomial model by including expansion options, divestment options and a combination of both. The results of this study show that the more options that managers can choose in decision-making, the greater the opportunity for the company to optimize profits and minimize losses.

The Impact of COVID-19 Pandemic on the Private Equity Valuation

As the downward pressure on the world economy increases, the financial industry continues to suffer, especially private equity funds. In recent years, the frequent occurrence of major special events and hot news around the world cannot help but make people doubt whether these special events will have an impact on the valuation of private funds. This paper takes COVID-19, the most typical and influential special event in recent years, as an example, combined with various data during COVID-19, to discuss the impact of the epidemic on private equity valuation models and the private equity market. This paper finds that the COVID-19 pandemic has severely affected the valuation accuracy of discounted cash flow method and made the valuation of the market method lower than the true value of the company. While sectors such as real estate, tourism and hospitality and logistics have been severely negatively impacted by COVID-19, the pandemic has boosted sectors such as fintech, healthcare, pharmaceuticals and biotechnology. After the test of this epidemic, investors and management teams need to make timely adjustments to valuation models, while taking into account long-term market trends and industry changes, more prudently evaluate investment opportunities, and make sound investment decisions.

Study Case: Company Valuation and Forecasting Financial Trends at PT PP London Sumatera Indonesia (LSIP)

PT PP London Sumatra Indonesia Tbk (LSIP) is a company that has been established in Indonesia since 1906 and started its IPO in 1996 with an IPO price of Rp4.650 for each share. Even though the company’s performance is going well and the trend of palm oil consumption in Indonesia is increasing, the share price of PT PP London Sumatra Indonesia Tbk has fluctuated and even decreased when compared to the initial IPO price and share prices in the last 5 years. So this raises the question of how the company’s stock performance will be in the next few years. In this research, the author begins by analyzing the macro-environment which may have an impact on the company and industry, then the author carries out an analysis of the financial statements of the company and its competitors. Apart from that, the author also tries to forecast the company’s financial performance and then continue with company valuation analysis using the discounted cash flow method. After getting the valuation results, the author tries to see the company’s level of sensitivity using scenario analysis and also carries out capital structure analysis to find the optimal capital structure. Based on the results of financial performance analysis, Lonsum (LSIP) has better financial performance compared to its competitors except for assets turnover. And then based on the results of discounted cash flow analysis, this company is not yet worthy of being a place for us to invest. And the last based on all the results of the previous analysis, when compared with competing companies, LSIP is a company that has quite a lot of potential as a place to invest. However, currently the company still has to look for a catalyst in order to become a company that is worthy of being a place for us to invest. Based on the result, the author suggest the reader to continue to collect information related to PT PP London Sumatra Indonesia Tbk, other competitors and plantation in similar industries to find catalysts that have positive impact on the company, and invest when the company has a positive catalyst.

Consistent DCF Methods for Constant-Growth Annuities à la Modigliani & Miller or Miles & Ezzell

Abstract In this paper, we develop two complete discounted-cash flow (DCF) frameworks for the valuation of constant-growth annuities and perpetuities. By ‘complete’ we mean that these frameworks allow the valuation of a firm or project by means of different DCF methods, particularly, the equity method, the free-cash-flow (FCF) method, the adjusted-present-value-method, and the capital-cash-flow method. This also requires the derivation of formulas that allow the translation between different required returns, like the required return on unlevered and levered equity, the discount rate in the FCF method, and the required return on the tax-shield. Our paper departs from the two most advocated and mutually exclusive frameworks when dealing with DCF. The first is based on Modigliani and Miller (M&M), where the FCF at different points in time are independently distributed. The second framework rests on the analysis of Miles and Ezzell (M&E) who presume a first-order autoregressive cash-flow process. Some elements of a ‘complete’ framework exist in the literature, but in our opinion, a complete picture has not been developed yet. The contributions of this paper are the following: (1) We develop (or expand) the set of formulas that are required for the valuation of constant-growth annuities and perpetuities; (2) The formulas we develop in this paper are based on a backward-iteration process, which in itself represents a suitable tool for firm valuation; (3) Using a numerical example, we show that the two mutually exclusive frameworks of M&M or M&E achieve very different valuation results; (4) It turns out that the expected returns and the growth rate of the FCF are partly linked, but this relationship is different in the two frameworks; (5) In our numerical examples, we show how the constant-growth annuity or perpetuity, can be integrated with an explicitly planned FCF.

The economic value of sustainability certification for sugarcane farms

Certifications related to sustainability in agribusiness are a crucial tool for promoting agricultural processes with a higher level of socio-environmental responsibility. However, their economic impact on small and medium-sized rural properties remains a topic of discussion. This research, with its comprehensive approach, aims to assess the economic potential generated by Bonsucro certification, an innovation process in sustainability. This process introduces pioneering evaluation criteria to meet the specific sustainability demands in the sugarcane sector on small and medium-sized properties. The approach was quantitative, using the Discounted Cash Flow method supported by Monte Carlo Simulation, where four scenarios were developed considering the small and medium producers without certification and with Bonsucro certification. The results obtained not only allow for obtaining the Economic Value of certified and non-certified producers but also for profiling the modal producer (who possesses traditional characteristics of the region), identifying convergence variables that are common characteristics among them and that impact land management, such as education, average age, investment capacity, among others. The findings demonstrate that small and medium-sized rural properties certified by Bonsucro create more economic-financial and sustainable value than uncertified rural properties. These findings can serve as a powerful motivator for private entities and associations of rural producers to implement certification, thereby empowering small and medium-sized rural producers to address relevant issues that have impacted the sustainability of sugarcane production, bringing significant results in terms of economic viability and socio-environmental impact.

Real Estate Development Feasibility and Hurdle Rate Selection

Real estate developers typically assess potential projects using feasibility analyses and industry-standard heuristics, which include capital costs, return on costs, and a subjective risk measure. This study explores real estate developers’ decision-making practices in selecting hurdle rates and common feasibility analysis techniques, surveying 225 Australian and New Zealand developers. The main findings are that most developers use specific ‘go/no-go’ hurdle rate mechanisms irrespective of primary real estate type, with the majority using margin on development cost (MDC) or internal rate of return (IRR); the boundaries between traditional speculative development and real estate investment through the use of securitization methods have become blurred; many developers use both quantitative metrics, with qualitative methods and specific structural checks to manage the risks involved; and the two most frequent methods of determining site value prior to acquisition are the residual land value and discounted cash flow methods. Most place a heavy reliance on industry-accepted heuristics and do not have a predetermined process and method for altering or adapting the chosen hurdle rates and benchmarks. This research provides a contribution to property development practice from the Antipodean perspective which until now has been more focused on the UK view, enabling more generalized application internationally.

Economic Analysis of Forest Management for Timber Production and Agricultural Production in Hillside Watershed Areas of Madagascar: A Case Study of the Itasy Region

In hillside watersheds, forests play a crucial role in protecting against soil erosion. Not only does forest vegetation cover serve as a biological measure to prevent soil erosion, it also generates income through sustainable management practices. However, there is a scarcity of research that evaluates and compares the profitability of perennial woody crops with that of other agricultural crops by integrating biological aspects within an economic analytical framework in Central Madagascar. In this study, we address this gap by combining a biological growth model that captures complex forest dynamics with economic management data to utilize the discounted cash flow method. We applied this approach to evaluate and compare the profitability of forest management and agricultural crop production in the hillside watershed areas of Central Madagascar, which have experienced severe human-induced soil erosion. Although our results showed that timber production is a profitable option, other agricultural crops generate much higher profits, indicating that financial subsidies alone may not be enough to shift land use toward perennial woody crops. In addition, growing fruit trees such as oranges and mangoes appears to be a much more financially attractive option for local farmers than annual agricultural crop production.

The Zomato dilemma: a realistic growth trajectory and share price fair valuation?

Learning outcomes This case study is related to start-up post-listing investment analysis. Through this case study, students will be able to perform the business analysis guided by the Venture Evaluation Metric tool, perform financial analysis using the discounted cash flow methods and perform investment analysis recommendation with justifications from the business and financial analysis performed above. Case overview/synopsis This case study sets out the study of a scalable start-up, Zomato, which is a successfully listed start-up firm in India. Despite the start-up development success in the pre-listing, the firm has exhibited a continuous unprofitable finance performance in the post-listing and has further experienced a volatile share price performance, both of which have puzzled existing and potential investors. In addition, some analysts are in the opinions that the firm share price valuation have been inflated with overvaluation since in the initial public offering stage and remain traded with overvaluation in the market. Notably, considering the negative indicators mentioned above, investors are concerned about long-term sustainability of the firm business and financial performance. In the context of post-listing investment, the following questions are material to investors: What is the realistic growth trajectory for Zomato in the medium term? What is Zomato’s share fair value in the medium term? Can one see opportunities or risks ahead of investing in Zomato’s shares? What will be the investment strategy for new investors? Complexity academic level This case study is suited to bachelor’s and master’s level in business schools studying entrepreneurial finance analysis. Supplementary material Teaching notes are available for educators only. Subject code CSS 1: Accounting and finance.

Stock Valuation Analysis Using The Discounted Cash Flow (DCF) Method With The Free Cash Flow To Firm (FCFF): Study Case of PT Transkon Jaya Tbk

Research Aims: This research aims to determine the fair price of TRJAshares and compare it with market prices to assess investment decisions.Design/methodology/approach: This research uses a qualitativedescriptive methodology by looking for historical data for 2018-2023,which is used as a basis for making projections for 2024-2028 using afinancial model in one company is PT Transkon Jaya Tbk. The valuationcalculation uses the discounted cash flow method with a free cash flowto-firm approach.Research Findings: The research results show that the valuation of TRJAshares using the Discounted Cash Flow method with the Free Cash Flowto Firm approach with certain assumptions is in an overvalued statewhere the intrinsic value is lower than the market price. The investmentdecisions investors can make for TRJA shares are selling if they alreadyown them or waiting until the share movement decreases to its intrinsicvalue to buy shares.Keywords: Valuation; Discounted Cash Flow; Free Cash Flow to Firm;Investment Decisions

РОЗРОБКА ТА РЕАЛІЗАЦІЯ ПРОЕКТУ МОДЕРНІЗАЦІЇ КОМПАНІЇ (НА ПРИКЛАДІ КОМПАНІЇ «КERNEL»)

Crucial logistical and export challenges, faced by agricultural producers in Ukraine, are described. Drawing on data from the Kernel company, one of the leading players in the agribusiness sector, internal strategies to overcome export barriers are analyzed. Crucial sources of financial resources mobilized by the company are identified. Additionally, an analysis of the company’s transportation assets is conducted. Furthermore, an investment project for the modernization of key assets, specifically railway transportation, is outlined. This involves collaboration with European countries, whereby Ukrainian grain delivery costs to European ports are offset. The economic feasibility of the project is substantiated through the discounted cash flow method.

Improving the methods to assess the investment attractiveness of fast-growing companies

Subject. The article addresses accounting and analytical support for assessing the investment attractiveness of fast-growing companies, having social and economic significance for countries of the world. Objectives. The aim is to improve the accuracy of investment valuation under discounted cash flow method by adding expert adjustments to financial models. Methods. The study employs logical and systems approaches, methods of comparative and investment analysis. A significant stage of the research was building a financial model based on the discounted cash flow method. The results of the study are presented in a tabular form. Results. I formulated my own definition of fast-growing companies, identified specific features of this group of companies that should be taken into account when assessing investment appeal. The paper reveals the main reasons for attractiveness of shares of fast-growing companies for potential investors and possible risks of investing in shares of such issuers, analyzes the dynamics of revenue as a significant component for building an estimation model under the discounted cash flow method, developed a predictive coefficient of revenue dynamics of fast-growing companies, which was used to assess the investment attractiveness of Detsky Mir company. Conclusions. The advantages of using the predictive coefficient of revenue dynamics in the context of assessing the investment attractiveness of fast-growing companies may be a more realistic revenue dynamics, and, therefore, a more conservative outcome of the investment assessment, consideration of the life cycle of fast-growing companies in general and the specifics of sectoral revenue dynamics. Disadvantages include the complexity of calculations to determine the coefficient and the need for statistical database for several subsequent periods.

Considerations on the discounted cash flow method in the determination of assets

The aim of this theoretical essay is to discuss, in the light of accounting and finance theory, the Judgment - REsp 1.877.331 of the 3rd Panel of the Superior Court of Justice (STJ), which decided that to determine the assets of a retiring partner, unless determined in the Articles of Association, the Discounted Cash Flow (DCF) method is not pertinent. As a basis for the argumentation of this essay, the concepts of assets and their characteristic of generating future economic benefits were incorporated. For the essayist, this characteristic is a beacon for measuring assets and the value of a company, which is made up of a set of tangible and intangible assets. The Discounted Cash Flow is considered one of the main methods for valuing companies. It is essentially financial, derived from the capacity to generate future projected benefits, discounted to present value, adding the value of perpetuity. This method can measure the company in its current situation without the need for growth projections or future macroeconomic factors since case law considers that the future does not belong to the retiring partner. However, the ability to generate these economic benefits cannot be disregarded, which could lead to a valuation that is not fair value, thus harming one of the parties in the dispute. Based on these aspects discussed in the essay, using Discounted Cash Flows in Asset Determination processes is considered pertinent.

Research on investment evaluation of highway projects based on system dynamics model

<abstract> <p>Aiming at the deficiencies presented by the traditional methods of highway project investment evaluation, the proposed highway investment evaluation method was based on system dynamics. First, we constructed an evaluation index system from profitability, solvency, and risk resistance and clarified the positive and negative causality within the investment evaluation system of highway projects; second, we determined the boundaries of the system dynamics model and divided it into six sub-systems, namely, income, cash flow, investment evaluation, profit, cost, investment and financing, and liabilities; and then, we established the system dynamics model of highway investment evaluation based on the sub-systems. The model made up for the limitations of the traditional discounted cash flow method; finally, taking the China's Yunnan Province an Expressway project as an example, using VENSIM software simulation, we get the evaluation results of the system dynamics model and make a comparative analysis with the discounted cash flow method, which showed that the calculation inaccuracies of the NPV and other financial indicators were in a reasonable range, and the evaluation method had strong operability and practicability. The system dynamics investment evaluation model provided a systematic, intuitive, whole-process investment evaluation method, which provided a theoretical basis for the analysis and decision-making of the investment effect of highway projects.</p> </abstract>

Cheating in the evaluation. An expedient to estimate the impact of intangibles on the enterprise value of the high-growth start-ups

This study investigates the effect of investments in intangible fixed assets and human capital on the Enterprise Value (EV) of Italian high-growth startups (HGSs). To test our hypotheses, we conducted several Ordinary Least Squares (OLS) regression analyses on a dataset comprising 782 HGSs. The EV was esti-mates using the Discounted Cash Flow (DCF) method. Our findings reveal a posi-tive and statistically significant relationship between investments in intangible as-sets and EV. However, investments in human capital and highly skilled workers show a negatively relationship with EV. Lastly, a positive and statistically signifi-cant relationship between value-added per employees and the EV of HGSs has been identified. This study offers valuable insight into the process through which new firms gener-ate value. By strategically investing in intangible assets and human capital, startups not only enhance their probability of survival but also improve their growth potential. This allows these companies to overcome the challenges of the early stage and embark on a sustainable growth process. To spotlight the unique value drivers of these companies, unlike prior studies, we manually estimate the EV. We have employed the DCF method by playing the cards face up: we used the actual cash flows realized by the HGSs during the study period instead of rely-ing on forecasts. We have therefore "cheated" to measure the value created by the HGSs. This research can be considered a pioneering study that significantly con-tributes to the ongoing debate on the value creation process in fast growing startups.

ANALISIS KELAYAKAN EKONOMI TAMBANG BENTONIT MENGGUNAKAN METODE DISCOUNTED CASH FLOW

This research was conducted to analyze and evaluate the feasibility of the bentonite mining business carried out by CV. Bentonit Ariyanto. The calculations in this research use Discounted Cash Flow (DCF). Discounted Cash Flow (DCF) is a cash flow calculation method that calculates the time value of money. Money invested in the present will have a different value in the future. From the calculation results using the Discounted Cash Flow method CV. BENTONIT ARIYANTO has a Net Present Value (NPV) of 2,864,612,232 > 0, Payback Period (PBP) 6 years 9 months < Age of Mine, Internal Rate of Return (IRR) 17.48% > MARR, Profitability Index (PI) 1, 95 > 1 and Sensitivity Analysis has a value when the selling price falls 5% and costs remain the same, the NPV value is 1,741,946,278, IRR 15.97%, PBP 9 years 1 month, PI 1.58. When the selling price falls 15% and costs remain the same, the NPV value is -503,385,631, IRR 10.78%, PBP 10 years 5 months, PI 0.83. When the selling price increases by 12.5% ​​from the current selling price and costs remain the same, the NPV value is 5,671,277,118, IRR 19.9%, PBP 4 years 3 months, and PI 2.89