A Monte Carlo Comparison between the Free Cash Flow and Discounted Cash Flow Approaches

Mehari Mekonnen Akalu () and Rodney Turner ()
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Mehari Mekonnen Akalu: Erasmus University Rotterdam
Rodney Turner: Erasmus University Rotterdam

No 02-083/1, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: One of the debates in the capital budgeting model selection is between the free cash flow and DCF methods. In this paper an attempt is made to compare SVA against NPV model based on Monte Carlo simulations. Accordingly, NPV is found less sensitive to value driver variations and has got higher forecast errors as compared to SVA model.

Keywords: Capital budgeting; Investment appraisal; DCF methods; Project Analysis; Shareholder Value Analysis; Value Management Techniques. (search for similar items in EconPapers)
JEL-codes: G30 G31 L6 L8 L9 M10 O22 O32 (search for similar items in EconPapers)
Date: 2002-08-20
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Citations: View citations in EconPapers (1)

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