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The risk of bankruptcy is real. This maybe truer for some companies over other companies – those with higher debt levels are considered riskier than those with less debt. Nevertheless, how do you account for the risk of bankruptcy? How do you account for this additional risk?
We address this question: “How can you feature the risk of bankruptcy in your DCF model?
Apples to apples and oranges to oranges. Different types of cash flows need to be discounted with different types of discount rates. How do you decide which discount rate is the appropriate discount rate for the different types of cash flows you will encounter?
We address this question here: “Is There an appropriate discount rate you must use?
The APV method conceptually is well accepted. The primary benefit of the APV method is that it separates the value derived from operations from the value derived from other sources such as tax shields, ancillary revenues/cash flows. However, there are some concerns.
We address the question “What are the drawbacks of the adjusted present value (APV) (if any)” here.
The DCF approach to valuation and the multiples method of valuation are common. Where does the APV method come in? What are the advantages of the adjusted present value (APV) method of valuation? How is it different?
We address this question on this webpage. “How is the adjusted present value (APV) method different from your standard DCF -WACC method?”