NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Valuation of Cash Flow Forecasts: An Empirical Analysis

Steven N. Kaplan, Richard S. Ruback

NBER Working Paper No. 4724
Issued in April 1994
NBER Program(s):   CF

This paper compares the market value of highly leveraged transactions (HLTs) to the discounted value of their corresponding cash flow forecasts. These forecasts are provided by management to investors and shareholders in 51 HLTs completed between 1983 and 1989. Our estimates of discounted cash flows are within 10%, on average, of the market values of the completed transactions. Our estimates perform at least as well as valuation methods using comparable companies and transactions. We also invert our analysis and estimate the risk premium implied by transaction values and forecast cash flows, and the relation of the implied risk premium to firm-level betas, industry-level betas, firm size, and firm book-to-market ratios.

download in pdf format
   (572 K)

email paper

This paper is available as PDF (572 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w4724

Published: Journal of Finance, volume 50, Sept 1995, pp1059-1094.

Users who downloaded this paper also downloaded these:
Lamont w5499 Cash Flow and Investment: Evidence from Internal Capital Markets
Ljungqvist and Richardson w9454 The cash flow, return and risk characteristics of private equity
Devereux and Schiantarelli Investment, Financial Factors, and Cash Flow: Evidence from U.K. Panel Data
Kaplan and Stromberg w14207 Leveraged Buyouts and Private Equity
Andrade and Kaplan w6145 How Costly is Financial (not Economic) Distress? Evidence from Highly Leveraged Transactions that Became Distressed
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us