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The first chicago valuation method

Mashhadi, S ; Sharif University of Technology | 2023

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  1. Type of Document: Article
  2. DOI: 10.1007/978-3-031-35291-1_8
  3. Publisher: Springer Nature , 2023
  4. Abstract:
  5. The First Chicago valuation method can be seen as a variation of the discounted cash flow (DCF) methodology. It provides a differentiated approach to analyzing companies at different stages in their lifecycle, further helping you to grasp the uncertainty involved. A further benefit of this approach is that it generates a variety of payoff scenarios for the company. Traditionally, three scenarios are constructed—the best, the base, and the worst case—and each scenario is assigned a probability. The valuation result is derived from a probability-weighted average of all three scenarios, so it includes both possible gains as well as potential losses in order to provide a precise valuation. This method is generally utilized by venture capitalists and private equity investors to appraise private companies because it incorporates both upside potential and possible downsides. © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023
  6. Keywords:
  7. Discounted cash flow (DCF) ; First chicago valuation method (FCVM) ; Probability-weighted valuation ; Scenario analysis ; Uncertainty analysis
  8. Source: Contributions to Finance and Accounting ; Volume Part F1460 , 2023 , Pages 159-181 ; 27306038 (ISSN)
  9. URL: https://link.springer.com/chapter/10.1007/978-3-031-35291-1_8