Exam questions Essay Example | Topics and Well Written Essays - 5000 words - 1

Exam questions - Essay ExampleThe Discounted Cash Flow (DCF) technique is the most commonly used valuation method that accounts for the going-concern value of the Company. The cash accrue projections are derived from (a) assumed revenue generation on product sales, less (b) operating costs and debt repayment on swell investments (not including interest payments), plus (c) an image of the Companys residual value at the end of the 3 to 5 year stop consonant. These projections are then discounted back to the present by the risk-adjusted, weighted-average cost of capital. This cost of capital accounts for interest payments and/or equity returns expected by investors in the Company over the projection period.Venture Capital Valuation TechniquesSophisticated investors such as VCs, institutional investors and corporate investors generally begin the valuation analysis by examining managements cash flow projections to test the beneathlying assumptions and business model. Once the investo r has developed a certain cling to level in the projections, a variety of techniques are used to determine the percentage ownership the investor bequeath require. Each of these methods start with the managements projections under the DCF technique, but sack managements application of its assumed discount rate to the present in order to value the Company. Instead, the VC investor imposes its own ROI, as indicated in each of the methods depict below - to envision its own investment parameters irrespective of managements analysis of the cost of capital. By applying its own ROI, the investor can then determine the percentage ownership it will require to overturn this ROI assuming a certain market valuation for the Company.Where these VC valuation methods differ from the DCF method is in (a) the difference...Once the investor has developed a certain comfort level in the projections, a variety of techniques are used to determine the percentage ownership the investor will require. Ea ch of these methods start with the managements projections under the DCF technique, but ignore managements application of its assumed discount rate to the present in order to value the Company. Instead, the VC investor imposes its own ROI, as indicated in each of the methods described below - to meet its own investment parameters irrespective of managements analysis of the cost of capital. By applying its own ROI, the investor can then determine the percentage ownership it will require to reach this ROI assuming a certain market valuation for the Company.Where these VC valuation methods differ from the DCF method is in (a) the difference in the discount rate, or ROI applied by the Company and by the investor, and (b) the use all VC methods employ of P/E ratios to determine market valuation of the Company at the end of the projection period (equivalent to the methods used under the DCF technique