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|Abstract:||We extend the analytical framework of traditional DCF models to allow for the possibility of a time-varying cessation risk for cash flows. We first set out a parsimonious functional form for timedependent survival probability of cash flows and then derive a closed-form solution for cessation risk-adjusted discount rates within a DCF model. Application of the model to a new data set, created for this paper, demonstrates that U.S. start-up firms face considerable risk of cessation, particularly during the first five years of their existence. This finding suggests that the time-varying discount rates that are appropriate to value them are considerably higher than those used in traditional DCF models.|
|Citation:||Saha, A, Malkiel, BG. (2012). Valuation of cash flows with time-varying cessation risk. Journal of Business Valuation and Economic Loss Analysis, 7 (1), 10.1515/1932-9156.1126|
|Pages:||1 - 22|
|Type of Material:||Journal Article|
|Journal/Proceeding Title:||Journal of Business Valuation and Economic Loss Analysis|
|Version:||Final published version. Article is made available in OAR by the publisher's permission or policy.|
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