Key input factors for discounted cash flow valuations

Abstract

Business valuation becomes requisite not only because of the recent trend of mergers and acquisitions but of course regarding to identification of economic value creation sources. This paper examines weighted average cost of capital and terminal growth rate as the key input factors that is needed for discounted cash flow valuation and can alter the valuation results considerably. A practical example of this implication is given using sensitivity analysis. A special emphasize is being put on the overview of methods that are used by appraiser's in nowadays Czech practice to calculate the equity cost. The following part of analysis is focused on investigation of the inherence of the fundamental assumptions that led appraisers to determination of terminal growth rate, the rate that influence the business value considerably.