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Chapter 10

5.5 Strengths and weaknesses of the discounted cash flow method

Strengths Weaknesses

 Theoretically the best method of  Difficult to forecast cash flows
valuation. accurately.

 Used to place a maximum value  Difficult to determine an
on the entity. appropriate discount rate.

 Considers the time value of  What time period should we

money. evaluate in detail?

 The model assumes that the

discount rate and tax rates are
constant through the period.

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