Free cash flow models, terminal values and the timing of asset replacements

Martin Lally

New Zealand Economic Papers, 2008, vol. 42, issue 1, 79-102

Abstract: This paper analyses the issue of the timing of expenditures in replacing fixed assets within the context of valuing firms using the free cash flow approach. Standard practice amongst both practitioners and academics is to assume a smooth pattern in these expenditures past some future point, and such a pattern is improbable. This paper develops a model that rests upon much less restrictive assumptions, shows that the model is readily amenable to implementation, and that the difference in valuation results could be quite substantial.

Keywords: Discounted Cash Flow; Terminal Value; Asset Replacement Timing (search for similar items in EconPapers)
Date: 2008
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DOI: 10.1080/00779950809544414

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