Discount Cash Flow and the Value Opportunities: Option Pricing

General Manager's Guide to Valuation
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General Manager's Guide to Valuation
Discount Cash Flow
Discount Cash Flow is an approach used to estimate the value of an investment based on the projected cash flows. In this regard, DCF aims to establish the present value of an investment based on the predictions of how much revenue it can generate in the future. The main advantage of using simple DCF offers opportunities to value the start-up performance in the coming days. For any investment lacking historical revenue, the simple DCF is useful in valuing the enterprise (Luehrman, 1997).
During the pre-seed stage, its is usually common that start-ups lack any revenue at the same time discussing ownership, equity transfers, as well as the accompanying valuation. The suitability of the DCF is based on the fact that it weighs the expected performance or revenue generation rather than the position of the enterprise. The methods are very detailed and include the significant assumptions regarding the business. It can also be undertaken without any comparable companies, which is beneficial for start-ups because they have no historical revenue to compare with other firms. In this regard, the approach assists in determining the intrinsic value of the enterprise, including all the future expectations of the investment (Luehrman, 1997).
When considering start-ups, it is also essential to understand the internal rate of return of the investment. The simple DCF allows investors to include essential changes in the business strategy, which are usually not reflected when using other valuation methods. The simple DCF predicts the best possible enterprise inherent value. It can also be used to tell w...