Disadvantages of a DCF Model
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Disadvantages of a DCF do not include:
1. Need realistic projected financial statements over at least one business cycle (7 to 10 years) or until cash flows are "normalized"
2. Sales growth rate, margin, investment in working capital, capital expenditures, and terminal value assumptions along with discount rate assumptions are key to the valuation
3. Free cash flows represent a significant portion of value and are highly sensitive to valuation assumptions
4. None of the above
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The answer is 1. You don't need projected financial statements. You need projected cash flows. Some start with financial statements and adjust ...
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