Oceňování 2022, 15(3):3-22 | DOI: 10.18267/j.ocenovani.279

The scope of discount factors used in DCF valuation in valuation practice

Jaroslav Brada

Doc. Ing. Jaroslav Brada, Ph.D., Vysoká škola ekonomická v Praze; Katedra měnové teorie a politiky

The paper describes methodological issues related to the construction of the required rate of return (WACC) for the purpose of valuation business unit using DCF entity and DCF equity methods. There is a discrepancy between the approaches of valuation practice in constructing the required rate of return on equity using the SML model using the stock market index as the so-called market portfolio versus using the market portfolio based on the theoretical CAPM model. Furthermore, the issue of identifying the cost of equity of floating rate foreign funds. The paper draws attention to the fact that DCF valuation methods are by their nature highly subjective valuation procedures, among other things due to the construction of discount factors (required rate of return) when valuing a business unit using DCF-based valuation procedures.

Keywords: CAPM; Market portfolio; DCF-required rate of return

Grants and funding:

Článek je zpracován jako jeden z výstupů výzkumného projektu pod evidenčním číslem IP100040.

JEL classification: G30

Published: January 30, 2023  Show citation