Skip to main content
Article thumbnail
Location of Repository

Valuation when Cash Flow Forecasts are Biased

By Richard S. Ruback


This paper focuses adaptations to the discount cash flow (DCF) method when valuing forecasted cash flows that are biased measures of expected cash flows. I imagine a simple setting where the expected cash flows equal the forecasted cash flows plus an omitted downside. When the omitted downside is temporary, the adjustment is to deflate the forecasts and to set the discount rate equal to the cost of capital. However, when the downside is permanent, the adjustment is to deflate the cash flows and to increase the discount rate so that it includes the cost of capital plus the probability of a downside.

OAI identifier:

Suggested articles


  1. (1998). Corporation: The Cost of Capital.”
  2. (2009). Creating Value Through Best-In-Class Capital Allocation”.
  3. (2009). Method for Valuing High-Risk, Long-Term Investments: The ‘Venture Capital Method’”.
  4. (2006). Principles of Corporate Finance.
  5. (2007). Understanding Business Valuation.

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.