Discounted Cash Flow Analysis

Die vorliegende Arbeit setzt sich mit der Frage auseinander, ob und auf welche Weise für Unternehmen mit Pensionsrückstellungen, Verbindlichkeiten aus Lieferungen und Leistungen und anderen Passivpositionen eine Bewertungstheorie in der Tradition des Discounted Cashflow angewendet werden kann. Diese Frage wurde in der Literatur bisher nicht systematisch diskutiert. Wir zeigen, wie Bilanzen zu modifizieren sind, wenn sie die für Discounted Cashflow-Verfahren notwendigen Informationen liefern sollen 1 Problemstellung Will man Unternehmen mit Hilfe von Verfahren des Discounted Cashflow (DCF) bewerten, so folgt man einem Paradigma, das sich auf den Beitrag von Modigliani und Miller (1958) zurückführen lässt: Die Analyse des Marktwerts von verschuldeten beziehungsweise schuldenfreien Unternehmen wird diesem Konzept folgend mit Hilfe einer Modellbetrachtung vorgenommen, die auf der Annahme beruht, dass die Zahlungsansprüche der Financiers des Unternehmens an perfekt funktionierenden Kapitalmärkten ohne Arbitragegelegenheiten gehandelt werden.

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Tracking cash flow is always important as a base for tracking costs, avoiding or reducing losses in turn to help in increasing profitability. This study aims to identify the impact of (operational, investment and financing cash flows sources) on profitability within period of Covid-19 pandemic through industrial companies which are listed in the ASE in Jordan. In order to achieve these objectives, the published financial reports of the (44) surveyed companies analysed for the five quarters from the beginning of 2020 up to 31 March 2021. The results of the study show an oscillating and low level of statistically significant impact of independent study variables (sources of operational cash flow and investment and financing) on the variables of the study (profitability). This study recommends expanding investment through property rights and avoids resorting to financing in the manner of high-cost borrowing. Thus, specific recommendation for achieving returns on long-term assets from financing and investment activities is better than operational activities.

Assessment of BOT project financial risk is generally performed by combining Monte Carlo simulation with discounted cash flow analysis. The outcomes of this risk assessment depend, to a significant extent, upon the total project uncertainty, which aggregates aleatory and epistemic uncertainties of key risk variables. Unlike aleatory uncertainty, modelling epistemic uncertainty is a rather difficult endeavour. In fact, BOT epistemic uncertainty may vary according to the significant information disclosed during the concession period. Two properties generally characterize the stochastic behaviour of the uncertainty of BOT epistemic variables: (1) the learning property and (2) the increasing uncertainty property. A new family of Markovian processes, the Martingale variance model and the general variance model, are proposed as an alternative modelling tool for BOT risk variables. Unlike current stochastic models, the proposed models can be adapted to incorporate a risk analyst's view of properties (1) and (2). A case study, a hypothetical BOT transportation project, illustrates that failing to properly model a project's epistemic uncertainty may lead to a biased estimate of the project's financial risk. The variance models may support, guide and extend the thinking process of risk analysts who face the challenging task of representing subjective assessments of key risk factors.

This paper examines the investment decisions of 51 Spanish venture capital firms by stage of development. The results showed that venture capitalists ranked evaluation criteria related to the characteristics of the entrepreneurs, manager background, and management team experience as more important than market and product characteristics. Factors affecting the required rate of return were more important for the early-stage firms than for late-stage firms. Discounted cash flow analysis is the most frequently used valuation method. Private venture capital firms invest more during late development stages, while public venture capital firms invest more during the early stages. The results can be used by firms seeking venture capital, venture capital firms, consultants, and support agencies that provide capital-acquisition assistance. By gaining insight into decision criteria and processes, firms can develop better and more targeted materials to attract capital. Venture capital firms can use the information from this study to better understand their decision processes, individually and relative to competitors. Consultants and support agencies can use the information to provide better advice to both firms and venture capital firms. Information is this study could easily be built into training programs for both new and existing businesses. Finally, the results can also be incorporated directly into university courses that include material related to venture capital.

Discounted cash flow is the main tool for valuing projects and companies. Real options techniques can augment valuation. The case of Netscape is used to demonstrate this. We begin with a defensive cash flow scenario. On top of this, we superimpose a number of real options valuations. Some experts would dispute our methodology because it is not built upon market-priced risk. Nonetheless, it provides an approximate valuation. We prefer equity valuation using various methodologies, including real options where appropriate, to arrive at a range of value. But we cannot, using financial logic, justify the high Netscape flotation price. 

The genesis of this IFC White Book lies in the teaching materials prepared for IFC’s Risk Governance Workshops conducted in 20 developing countries during the 2010–2012 time period by the book’s authors. The book and workshops also benefited from the contributions of Torben Andersen of Copenhagen Business School and Zur Shapira of New York University’s Stern School of Business. The contents of the book reflect this team’s years of risk management and governance practice as managers, directors as well as their academic scholarship.

More than 1,000 corporate directors and senior managers participated in the workshop series. The handbook has been shaped by their views, experiences and other feedback and reflects the richness of wide and varied collective experience. The authors have shared specific examples from the participants’ experiences in the handbook — as much as confidentiality constraints allow.

Numerous stock exchanges, regulators, central banks, schools and other institutions partnered with us in hosting the events. The workshops would not have been possible without their administrative support. They also provided key intelligence on local conditions and helped us frame materials to specific emerging market conditions.

IFC staff in local offices and in Washington, D.C. gave their time to help to make these workshops happen. These extended team members are valuable contributors to this final product in as much as their efforts, contacts, and knowledge contributed to the workshops and to the shaping of the consulting teams’ views on risk-taking challenges in emerging markets.

The workshops were funded by contributions from the governments of the Netherlands and Austria, and from IFC. Without their commitment to development, these workshops and this handbook would not have been possible.

This paper discusses the sensitivity analysis of valuation equations used in investment decisions. Since financial decision are commonly supported via a point value of some criterion of economic relevance (net present value, economic value added, internal rate of return, etc.), we focus on local sensitivity analysis. In particular, we present the differential importance measure (DIM) and discuss its relation to elasticity and other local sensitivity analysis techniques in the context of discounted cash flow valuation models. We present general results of the net present value and internal rate of return sensitivity on changes in the cash flows. Specific results are obtained for a valuation model of projects under severe survival risk used in the industry sector of power generation.

The great variability of mineral and energy prices has motivated some governments to incorporate a windfall profits tax into their mineral taxation regimes. Windfall profits taxes are a means for governments to capture additional mineral revenue when mineral prices are considered higher than some historic level. Governments need to be aware of the effects of such contingent taxes on the exploration, development and operating decisions of mining companies. Mining companies need to be able to calculate the full impact of windfall profits taxes on the economics of their projects. This paper examines the valuation of a multi-phase copper-gold project in the presence of a windfall profits tax. Real options Monte Carlo simulation is used to characterise the different exposures of the mine owner and of the government to the risky cash flow streams that they receive from the project. The results highlight that Monte Carlo simulation paired with the real option valuation method is able to account appropriately for the differing risk exposures, while the traditional discounted cash flow valuation model is not. Our key conclusion for governments and mining companies is that the impact of contingent tax and royalty terms can and should be assessed using advanced valuation techniques, and the results used to improve contract designs under the constraint of actual and perceived fiscal system stability.

This paper is a summarized compendium of all the methods and theories on company valuation using discounted cash flows. It illustrates ten methods: free cash flow; equity cash flow; capital cash flow; APV (adjusted present value); business's risk-adjusted free cash flow and equity cash flow; risk-free rate-adjusted free cash flow and equity cash flow; economic profit; and EVA. All ten methods always give the same value. This result is logical, as all the methods analyze the same reality under the same hypotheses; they differ only in the cash flows taken as the starting point for the valuation.

Risk-adjusted equity valuation of Tesla Motors: A practical application of Monte Carlo simulation to calibrate risk and uncertainty of risk in a Discounted Cash Flow valuation
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Financial equity valuation of public companies is a complex and daunting task. In a tech start-up arena, promising companies are generally evaluated against expected future potential of their innovation and/or ability to capitalize on those expectations. In these cases, financial historical data is generally of limited value for evaluating future financial projections, thus analysts often rely on hypothetical inputs to valuate equity. Tesla Inc. (NASDAQ: TSLA) is a notable example in this category- a Silicon Valley “poster child” in the automotive space with a vision to advance the adoption of electric mobility across the world. Though many could argue Tesla Motors is a globally recognized brand, the company is still in the dawn days of mass-production with total output for 2016 at 84,700 units, which fails by comparison to nearly 6.7 million vehicles that Ford produced during the same time. Yet, early in 2017 the electric car-maker’s valuation reached over $51 billion dollars briefly surpassing Ford and General Motors in market-cap to become the most valuable carmaker in the United States. Dunn (2017) Historically, the automotive industry has been considered rather predictable due to its capital-intense requirements for heavy expenditures for manufacturing, infrastructure, as well as research and development. Founded on these financial variables and levers, along with market outlook reports, analysts have been able to methodically issue valuations and investment guidance to the market. Yet, while Tesla Motors operates in the same industry, the company’s hefty capital outflows, shadowed by consistent annual losses and missed delivery targets (typically a recipe for a financial meltdown) is contrasted by rather exceptional stock performance since its IPO in 2010. This phenomenon draws a fine line between the two opposing investment camps on Wall Street. The bulls, in the optimistic corner are charged by fanatic optimism on Tesla’s hyper-growth and industry-disruption potential. This positive outlook is further galvanized by the charismatic and visionary leader of Tesla’s electrification revolution-Elon Musk. A serial entrepreneur, co-founder and a CEO of Tesla, who is confidently leading charge into the battle for EV (Electric Vehicle) survival.

Valuation is a method used to determine the correct market value of an asset, the most common methods used are: valuation through discounted cash flow, relative valuation through similar companies comparison and real options valuation.
The aim of this study is to estimate the value of an asset from the perspective of  Free Cash Flow For The Firm (FCFF) of  EZTEC company listed on Brasil, Bolsa, Balcão (B3) since 2007 under the ticket EZTC3, one of the largest real estate companies in Brazil. Based on the analysis of the macro economy,  real estate market,  business environment, and last 5 years’s financial statements, will be drawn cash flow projections, which discounted according to the Weighted Average Cost of Capital (WACC), will provide the valuation or fair price of the asset.
Comparing with the current asset value will drive the conclusion and determinate the asset’s fair value, capital structure’s analysis and economic value added.
Keywords : EZTC3, valuation , FCFF,WACC, EVA.

Project finance (PF) investments have consistently grown in the last years, especially if they concern infrastructural Public – Private Partnerships. PF is a long termed and capital intensive investment, guaranteed by expected cash flows, rather than the assets of the project sponsor. Private entities, normally created as ad hoc Special Purpose Vehicles, are typically highly leveraged with non-recourse loans. Since the shareholders may be likely to sell off their stake well before the expiring date of the concession, a professional evaluation of the SPV at different stages of the project's life seems increasingly important. Fair appraisals fuel and keep alive a secondary market where investment funds and private equity intermediaries start having an active role. Being PF a cash flow based investment, DCF evaluation techniques are generally used; even if the method may seem straightforward, several awkward factors interact-and sensitivity to different parameters, such as inflation or interest rates, greatly matters. To the extent that it can be professionally managed by specialized agents, risk sharing or transmission is not a zero sum game, so positively affecting both the equity and the enterprise value.

Discounted cash flows (DCF) have been a traditional method in business valuation. This method is most useful in judging the risk and uncertainty of a project. Since few years, companies like Infosys have used this approach to value their brands and represent the same in their balance sheet. The US GAAP FASB 142 outlines the fair value measurement of intangibles and goodwill impairment by using the discounted approach. This has further been described in the provisions of the Statement of Financial Accounting Concepts No. 7. The concepts provide guidelines for analyzing new or up-and-coming problems of financial accounting and reporting.The DCF methodology is not without its drawbacks, yet it makes a popular tool for measurement of projects under capital budgeting and in large-scale business valuation. Lately, for the measurement of intangibles and goodwill impairment, DCF approach has been used. Intangible assets are recognized according to the statement FAS 142 as over the period wh...

This article introduces a new financial metric for managerial performance evaluation, Value Added to Invested Capital (VAIC), with the cost of unlevered equity as a hurdle rate to calculate the capital charge rather than the widely accepted WACC. VAIC preserves all positive features of the conventional residual operating income and EVA® and has the distinct advantage of computational simplicity and straightforward interpretation. Associated valuation model is equivalent to the standard discounted cash flow approach; this equivalence is formally proved under certain assumptions regarding the risk of tax shields and confirms consistency of the new metric proposed. VAIC can serve as an aggregate financial indicator on the business performance dashboards, and might as well be considered a valid substitute for the established EVA© and ReOI metrics in evaluating managerial performance. Equivalence of the VAIC valuation model to the fundamental approach of valuing a business by cash flow discounting makes this metric not only a robust measure of financial performance but also a full-fledged investment valuation tool.

The real option valuation method is often presented as an alternative to the conventional discounted cash flow (DCF) approach because it is able to recognize additional project value due to the presence of management flexibility. However, these two valuation methods can be separated on a more fundamental level by their differences in risk discounting. Real option valuation applies the risk-adjustment to the source of uncertainty in the cash flow while the DCF method adjusts for risk at the aggregate level of net cash flow. This seemingly small difference is the reason why the real option method is able to differentiate between projects according to each project's unique risk characteristics while the conventional DCF approach cannot.

This article reports the results of a survey of executives of companies listed on the Jakarta Stock Exchange regarding their companies' capital budgeting practices and the major factors influencing their practices. The results show that the majority of responding companies use formal techniques to evaluate proposed capital investments. Of these companies, the majority use a discounted cash flow technique as the primary measure for evaluating capital investment proposals. Scenario and sensitivity analysis are the most commonly-used risk assessment techniques. Risk-adjusted discount rates and the CAPM are not yet widely used in Indonesia. The most important objectives in capital budgeting are growth in cash flows and long-term earnings followed by growth in share price. The results also show that chief financial officer educational background and period of listing influence capital budgeting analysis technique usage.

Turkish Airlines (THY) is the flag carrier airline of Turkey and it aims to be a permanent global actor in the airlines sector. THY considers itself having a constant competitive advantage since it is located on a natural hub, Istanbul. The following Master's Final Work is completed with an aim of discovering an intrinsic value for the stocks of THY as of December 2013. This project includes a literature review presenting pros and cons of different valuation techniques followed by an industry and company specific analysis. It continues with the actual valuation of THY performed by using Discounted Cash-Flows method. The final outcome using this method suggested an intrinsic value of 8.08 TL for THY stocks of those are undervalued with a price of 6.44 TL. This result indicates a 25.53% potential appreciation of the stock price for THY. Finally, relative valuation method is also applied to identify THY's position compared to how other companies in airline industry are being evaluated.

A Turkish Airlines (THY) é a companhia aérea nacional da Turquia e tem como objetivo ser uma referência global no setor das companhias aéreas. A THY tem uma vantagem competitiva dada a sua localização central em Istambul. O Trabalho Final de Mestrado que se segue tem como objetivo principal a estimatıva do valor intrínseco das ações da THY, a partir de Dezembro de 2013. Este projeto inclui uma revisão literária aos diferentes métodos de avaliação, enfatizando os seus pontos fortes e fracos. É feita uma análise específica ao nível do sector e da empresa. Procede-se uma avaliação da THY através do método Discounted Cash-Flow, resultando um valor intrínseco de 8,08 TL por ação, indicando uma subvalorização face ao preço atual de 6,44 TL. Esta avaliação indica um potencial de valorização na ordem dos 25,53% do preço por ação. Por fim, aplica-se o método de avaliação relativa para estimar a posição da THY no seu sector de atividade.

This paper compares estimates of value derived from conventional discounted cash flow and price earnings valuation methods to the market price. For a sample of 45 firms newly listed on the New Zealand Stock Exchange our results suggest that the best discounted cash flow method and the best price earnings comparable have similar accuracy. The median absolute pricing error is around 20% and the models explain around 70% of the crosssectional variation in market price scaled by book value. The results serve to corroborate the findings of .

This paper focuses on the assumptions of infinite-horizon forecasting in the field of firm valuation. The estimate of long-run continuing values is based on the hypothesis that companies should have reached the steady state at the end of the period of explicit forecasts. It is argued that the equivalence between cash accounting and accrual accounting is the way of verifying the steady-state assumption, defined as the state when a firm earns exactly its cost of capital, i.e., what we would expect in pure-competition settings. From this definition, we derive that the “ideal” growth rate to use in steady state is equal to the reinvestment rate times Weighted Average Cost of Capital. To validate our approach, we collect a sample of 784 analyst valuations and compare how the implied target prices deviate from what the target prices would have been using the “ideal” steady-state growth rates. Using Logit and Cox regression models, we find that this deviation has predictive value over the probability that actual market price reaches the target price over the following 12-month period—the smaller the deviation the greater is the likelihood that the market price reaches the target price.

The real option valuation method is often presented as an alternative to the conventional discounted cash flow (DCF) approach because it is able to recognize additional project value due to the presence of management flexibility. However, these two valuation methods can be separated on a more fundamental level by their differences in risk discounting. Real option valuation applies the risk-adjustment to the source of uncertainty in the cash flow while the DCF method adjusts for risk at the aggregate level of net cash flow. This seemingly small difference is the reason why the real option method is able to differentiate between projects according to each project's unique risk characteristics while the conventional DCF approach cannot.

Businesses have faced many challenges over financing in recent years, big and small companies are dying daily. Liquidity ensures that the company maintains equal and adequate cash and liquid assets, to be able to meet the clients’ demands for loans or savings withdrawals, and be able to pay their own expenses and overheads.  Interest rate capping has made funding for all businesses more challenging and recent market volatility has exacerbated the situation. Do you know how much easily accessible money you have in the form of cash and equivalents? This is a measure of your liquidity.
Cash is a company's lifeblood. In other words, a company can sell lots of widgets and have good net earnings, but if it can't collect the actual cash from its customers on a timely basis, it will soon fold up, unable to pay its own obligations.
Cash flow and liquidity ratios let you assess the amount of working capital you have in your business, and how solvent the business is in the short to medium term. It shows how much money you have available to meet creditors' demands. You can use this ratio to establish whether your business has enough current assets to pay its current debts, with a margin of safety for unforeseen losses, such as reduced stock levels or hard-to-collect debts.
A more stringent measure is the quick ratio, sometimes called the acid test ratio. This uses current assets (excluding inventory) and compares them to current liabilities. Inventory is removed because, of the various current assets such as cash, short-term investments or accounts receivable, this is the most difficult to convert into cash. A value of greater than one is usually considered good from a liquidity viewpoint, but this is industry dependent.
Liquidity is important for both individuals and companies. While a person may be rich in terms of total value of assets owned, that person may also end up in trouble if she is unable to convert those assets into cash. The same holds true for companies. Without cash coming in the door, they can quickly get into trouble with their creditors. An understanding of the liquidity of a company's stock within the market helps investors judge when to buy or sell shares, also helps investors avoid those that might run into trouble in the near future.
The least liquid asset is usually considered to be real estate because that can take weeks or months to sell. When we invest in any assets, we need to keep their liquidity levels in mind because it can be difficult or time consuming to convert certain assets back into cash.
In the market, liquidity has a slightly different meaning, although still tied to how easily assets, in these case shares of stock, can be converted to cash. The market for a stock is said to be liquid if the shares can be rapidly sold and the act of selling has little impact on the stock's price. Generally, this translates to where the shares are traded and the level of interest that investors have in the company. Company stock traded on the Nairobi Securities Exchanges can usually be considered liquid. Often, approximately 1% of the float trades hands daily, indicating a high degree of interest in the stock. On the other hand, company stock traded over the counter are often non-liquid, with very few, even zero, shares traded daily.
One thing to note as an investor when placing an order is the liquidity of the stock. During normal market hours on the major exchanges, placing a limit order will get you the price you are looking for. This is particularly true for companies that are non-liquid, or during after-hours trading when fewer traders are active; at these times, it is better to place a limit order because the lower liquidity may lead to a price you would not be willing to pay. A ratio of 2 or higher, indicating you have twice as many assets as liabilities, suggests your business is in good shape. A working capital ratio of less than 1 indicates your business may be in trouble.
One may be able to create a centralized or a decentralized business model. The former model will include a business or a corporation having a single cash and flow management solution which the entire business and its departments have to follow. A decentralized model, on the other hand, affords the different departments to make up their cash flow management depending on their own needs.
The company may prioritize on their receivables and payables. By managing the cash flow, the business will automatically have a more focused opinion on their assets and how and in what way to use the assets. It also aids to have some working capital to make the day to day transactions easier and more efficient. The business may also face the problem of trapped cash. The company may have trouble accessing the money in other countries and there may also be problems in managing the liquidity on hand. In the latter situation, the company can develop internal liquidity management departments rather than external which only results in more outflow of money.

Financial Valuation method (Discounted Cash Flows) applied to professional football clubs, and impact of covid 19 crisis on soccer economy.
Study case for Olympique Lyonnais, the only french professional football/soccer club listed in the Stock Exchange.

This paper represents a discounted cash-flow approach for an inventory model for imperfect items under inflationary conditions with considering inspection errors. The previous imperfect quality inventory studies, however, have mostly had the emphasis on developing cost-minimizing models that do not consider imperfect inspection processes and related defect sales return issues despite their practical significance. In this paper, we assume that some produced items might not be perfect and the first stage inspector of product quality control might make some inspection errors during the separation of defective and perfect items. Thus, this study proposes a profit maximizing inventory model with incorporating both imperfect production quality and two-way imperfect inspection, i.e., Type-one inspection error of falsely screening out a proportion of no defects and disposing of them like defects and Type-two inspection error of falsely not screening out a proportion of defects, thereby passing them on to customers, resulting in defect sales returns. In addition, this model includes one more stage of inspection that is after the rework process and there is no inspection error in this stage. The purpose of this model is to determine the important factors of an inventory system to optimize the present value of the total profit in the finite time horizon. Finally, a numerical example is provided to solve the presented inventory model using our proposed innovative approach, which is further clarified through a sensitivity analysis.

Some Latin American policy-makers and analysts state that it would be better to hold oil reserves in place than to produce and cash it now, given the recent oil prices spikes and the fear related to future oil supply disruptions. This article evaluates the strategy of delaying the start-up of oil production in a discovered field with proved reserves. A Reference Discounted Cash Flow (FCD-R) for a typical 350 million barrel Brazilian oil field was simulated. The study estimated which future oil price may render the project insensitive to a delay of 5, 10, 15 or 20 years in its production beginning. Additionally, the value of the in situ oil stock was calculated, providing the opportunity cost for delaying oil production in a frontier area, such as Brazil. It is an application of the Hotelling Principle. Findings indicate that progressive delays of 5 years in the start-up of operation of a typical oil field reduce its revenues by a factor of 2. A delay of 10 years would be justifiable at international oil prices higher than US $15/bbl. Delays higher than 10 years lead this break-even price to values between US $200 and 350/bbl.

A Resource Investment Problem with Discounted Cash Flows is a project scheduling problem in which the availability levels of the resources are considered decision variables and the goal is to find a schedule and resource requirement levels such that the net present value of the project cash flows optimizes. In this paper, we present a genetic algorithm to solve this problem. We explain the elements of the algorithm such as chromosome structure, fitness function, crossover, mutation, and local improvement operations and solve more than 220 problems with known optimal solutions to evaluate the performance of the proposed algorithm. The results of the experimentation are quite satisfactory.

In this paper, we evaluate a multi-stage information technology investment project, by implementing and resolving Berk, Green and Naik’s (2004) model, which takes into account specific features of IT projects and considers the real option to suspend investment at each stage. We present a particular case of the model where the project value is the solution of an optimal control problem with a single state variable. In this case, the model is more intuitive and tractable. The case study confirms the practical potential of the model and highlights the importance of the real-option approach compared to classical discounted cash flow techniques in the valuation of IT projects.

This article deals with an inventory model under a situation in which the supplier offers the purchaser some credit period if the purchaser orders a large quantity. Shortages are not allowed. The effects of the inflation rate on purchase price, ordering price and inventory holding price, time dependent deterioration of units and permissible delay in payment are discussed. A mathematical model is developed when units in inventory are subject to time dependent deterioration under inflation when the supplier offers a permissible delay to the purchaser if the order quantity is greater than or equal to a pre-specified quantity. Optimal solution is obtained and algorithm is given to find the optimal order quantity and replenishment time, which minimizes the total cost of an inventory system in different scenarios. The paper concludes with a numerical example to illustrate the theoretical results and interdependence of parameters is studied for the optimal solutions.

New information and communication technologies have been
gaining widespread use in Distance Education (DE) models.
At the same time, the uncertainty in the market demand for
this form of higher education is such that the valuation of e-
Learning projects has become increasingly difficult and complex.
This is due to the fact that uncertainty and flexibility
are central to DE projects, and traditional valuation models
such as the Discounted Cash Flow (DCF) method fail to capture
the value of the management flexibility that is inherent
in these types of projects. We analyze a typical college level
MBA DE project and show how option pricing methods can
be used to determine both the project value and the optimal
investment strategy. We develop a real options model which
allows managers to optimize their decision making process
when there is the option to postpone project implementation
for a limited period of time. We conclude that this approach
allows for a more comprehensive valuation of the strategic
flexibilities that exist in this class of project, improves the
quality of managerial decisions and reduces the risk of investment
under uncertainty.

Among both inventory theorists and practitioners, it is common use to include an opportunity cost rate in the holding cost rate. In that way, the cost of capital can be roughly incorporated in an average cost (AC) inventory model. The traditional way for calculating the opportunity cost rate is to multiply the interest rate (or discount rate) by the marginal cost for producing/ordering an item. For single source inventory systems with only forward logistics, this method is easy to use, and leads to near-optimal policies from a discounted cash¯ow (DCF) point of view. For inventory systems with reverse logistics, however, the method is no longer straightforward. In this paper we compare dierent methods for calculating the opportunity cost rates of returned non-serviceable, remanufactured, and manufactured items. We discuss which method gives the best results for a speci®c reverse logistics model with setup costs, non-zero lead times, and disposal. 7

The proportion of sustainable property in the total building stock remains small. One reason is that the financial added value resulting from sustainability is not sufficiently taken into account in property valuation due to the tendency of valuations to lag behind market trends. This article presents the development of a new approach that attempts to provide the quantitative information necessary to integrate those aspects of sustainability relating to value into valuations and thereby contribute to reducing the valuation lag. The CCRS Economic Sustainability Indicator ESI measures the risk of property to lose and the opportunity to gain value due to future developments like climate change or rising energy prices. Five groups of value-related sustainability features were identified: flexibility and polyvalence, energy and water dependency, accessibility and mobility, security, health and comfort. By minimizing the risk of loss in value through future developments, those sustainability features contribute to the property value. Their effects on property value were quantified by risk modelling. As an indicator for future-oriented property risk, ESI is integrated in the discount rate of Discounted Cash Flow (DCF ) valuations. The approach has been tested for plausibility and practicability on more than 200 properties.