A Binary Model of Discounting Cash Flows to Correct Risk Assessment for Real Assets Evaluation
Discounting cash flows at the present stage of development of financial science is the basis of most financial calculations. However, the current practice of applying this method, taking into account risks in the discount rate in the form of a risk premium to the magnitude of the required return, is more suitable for the valuation of financial assets since they generate only one type of cash flow (inflows). In the case of real assets that generate both inflows and outflows, the use of a single discount rate, including a risk premium, leads to inadequate accounting for the risks of increasing outflows relative to their predicted value (risks of the second kind). To eliminate this drawback, this article proposes a binary cash flow discounting model that involves the use of two discount rates (separately for inflows and for outflows) determined on the basis of the yield required for this asset. The proposed model allows one to correctly take into account the risks of both the first and second kind and calculate the range of possible values of the net present value of the asset being evaluated. As shown in this article on the example of evaluating investment projects, when evaluating real assets, there is a significant difference between the net present value determined by the traditional approach to discounting cash flows using the required yield as a single discount rate for both inflows and outflows and the value of the net present value determined on the basis of the proposed binary model with separate consideration of the risks of the first and second kind at two different rates of discounting. The difference in valuation results is most pronounced for real assets that generate extraordinary cash flows. Differences arise due to the correct consideration of the risk of the second kind in the proposed method, which makes it possible to recommend it for use in the framework of the discounted cash flow method when evaluating real assets. It seems that this will provide an opportunity to achieve the maximum reasonableness of valuation of assets of this type and will improve the quality of management decisions made on the basis of the discounted cash flow method.
Keywords
дисконтированные денежные потоки,
ставка дисконтирования,
требуемая доходность,
риск и доходность,
реальные активы,
discounted cash flows,
discount rate,
required rate of return,
risk and return,
real assetsAuthors
| Galevskii Sergey G. | Saint-Petersburg Mining University | sgalevskii@gmail.com |
Всего: 1
References
Галевский С.Г. Модификация модели CAMP для корректного учета рисков в методе дисконтированных денежных потоков // Научно-технические ведомости СПбГПУ. Экономические науки. 2019. Т. 12, № 1. С. 201-212.
Graham J.R., Harvey C.R. The theory and practice of corporate finance: evidence from the field // Journal of Financial Economics. 2001. № 60. Р. 187-243.
Brounen D., De Jong A., Koedijk K.C.G. Corporate Finance in Europe Confronting Theory with Practice. ERIM Report Series Research in Management, Erasmus Research Institute of Management. 2004.
Gitman L., Kandenberg P. Cost of Capital Techniques Used by Major US Firms: 1997 vs. 1980 // Financial Practice and Education. Fall/Winter 2000. Р. 53-68.
Bruner R., Li W., Kritzman M., Myrgren S., Page S. Market integration in developed and emerging markets: Evidence from the CAPM // Emerging Markets Review. 2008. Vol. 9. Р. 89-103.
Truong G., Graham P., Peat M. Cost-of-Capital Estimation and Capital Budgeting Practice in Australia // Australian Journal of Management. June 2008. Р. 95-121.
Kolouchova P., Novak J. Cost of Equity Estimation Techniques Used by Valuation Experts // IES Working Paper 8/2010. IES FSV, Charles University.
Галевский С.Г. Субъектно-ориентированный подход к оценке требуемой доходности на собственный капитал // Научно-технические ведомости СПбГПУ. Экономические науки. 2017. Т. 10, № 3. С. 197-208.
Галевский С.Г. Выбор портфеля ценных бумаг на основе субъектноориентированного подхода к оценке требуемой доходности // Научно-технические ведомости СПбГПУ. Экономические науки. 2018. Т. 11, № 3. С. 128-139.
Sharpe W. Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk // Journal of Finance. 1964. № 19. Р. 425-442.
Lintner J. The Valuation of Risky Assets and the Selection of Risky Investment in Stock Portfolios and Capital Budgets // Review of Economics and Statistics. 1965. № 47. Р. 13-37.
Mossin J. Equilibrium in a Capital Asset Market // Econometrica. 1966. № 34 (4). Р. 768-783.
Pereiro L. The valuation of closely-held companies in Latin America // Emerging Markets Review. 2001. № 2. Р. 330-370.
Bekaert G., Harvey C. Time-Varying World Market Integration // Journal of Finance. 1995. V. 50, № 2. Р. 403-444.
Bekaert G., Harvey C. Foreign speculators and emerging equity markets // Journal of Finance. 2000. Vol. 55, № 2. Р. 565-613.
Bekaert G., Harvey C. Capital Flows and the Behavior of Emerging Market Equity Returns. Unpublished Working Paper 6669, 2003.
Lessard D. Incorporating country risk in the valuation of offshore projects // Journal of Applied Corporate Finance. 1996. № 9 (3). Р. 52-63.
Godfrey S., Espinosa R. A Practical Approach to Calculating Costs of Equity for Investments in Emerging Markets // Journal of Applied Corporate Finance. 1996. № 9 (3). Р. 80-89.
Damodaran A. Estimating Equity Risk Premiums (Working paper). N.Y. : NY University, Stern School of Business, 2002.
Damodaran A. Investment Valuation: Tools and Techniques for Determining the Value of any Asset. 2nd. ed. N. Y. : Wiley Frontiers in Finance, 2002.
Banz R. The Relationship between Return and Market Value of Common Stocks // Journal of Financial Economics. March. 1981. № 9. Р. 3-18.
Barry C., Goldreyer E., Lockwood L., Rodrigues M. Robustness of Size and Book-to-Market Effects: Evidence from Emerging Equity Markets // Emerging Markets Review. 2002. № 3.
Mariscal J., Lee R. The Valuation of Mexican Stocks: An Extension of the Capital Asset Pricing Model. N. Y. : Goldman Sachs, 1993.
Hamada R.S. Portfolio Analysis, Market Equilibrium and Corporation Finance // Journal of Finance. May 1969. Р. 13-31.
Hamada R.S. The Effect of the Firm's Capital Structure on the Systematic Risk of Common Stocks // Journal of Finance. May 1972. Р. 435-452.
Estrada J. The Cost of Equity in Emerging Markets: A Downside Risk Approach // Emerging Markets Quarterly. (Fall), 2000. Р. 19-30.
Estrada J. The Cost of Equity in Emerging Markets: A Downside Risk Approach (II) // Emerging Markets Quarterly. (Spring), 2001. Р. 63-72.
Estrada J. Systematic Risk in Emerging Markets: The D-CAPM // Emerging Markets Review. 2002. № 3 (4). Р. 365-379.
Estrada J., Serra A. Risk and Return in Emerging Markets: Family Matters // Journal of Multinational Financial Management. 2005. № 15 (3). Р. 257-272.
Бухвалов А.В., Окулов В.Л. Классические модели ценообразования на капитальные активы и российский финансовый рынок. Ч. 1: Эмпирическая проверка модели CAPM // Научные доклады НИИ менеджмента СПбГУ. 2006. № 36. С. 46-52.
Бухвалов А.В., Окулов В.Л. Классические модели ценообразования на капитальные активы и российский финансовый рынок. Ч. 2: Возможность применения вариантов модели CAPM // Научные доклады НИИ менеджмента СПбГУ. 2006. № 36. С. 5361.
Теплова Т.В., Селиванова Н.В. Эмпирическое исследование применимости модели DCAPM на развивающихся рынках // Корпоративные финансы. 2007. № 3. С. 5-25.
Teplova T., Shutova E. A Higher Moment Downside Framework For Conditional And Unconditional CAPM In The Russian Stock Market // Eurasian Economic Review. 2011. № 1 (2). Р. 157-178.
