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Income-Based Method

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Abstract

Under an income-based approach, the value of the firm is calculated based on the cash flows the firm will be able to generate in the future. This chapter focuses primarily on the calculation of the expected cash flows (both asset-side and equity-side valuation). It then analyzes in greater detail the discount rate, which aligns the cash flows pertaining to different periods and takes into account their volatility based on the firm’s riskiness; specifically, the weighted average cost of capital (WACC) and the capital asset pricing model (CAPM) are examined. Finally, practical indications are provided for calculating the terminal value.

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© The Author(s) 2018

Authors and Affiliations

  1. 1.European University of RomeRomeItaly

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