Estimating cash flows in valuation process, Financial Management

The first step in valuation process is to estimate the cash flows that are expected to be received in the future. In debt securities, there are two types of possible cash flow: Interest and principal repayment. The estimation of cash flow is not easy excluding few securities such as government-dated securities. Government dated securities have known interest payments, so estimating cash flow becomes very easy for these kinds of securities. However, there are securities coming with different types of options; estimating cash flow for these securities is a little difficult. Examples of these kinds of securities are as follows:

  • Securities with an option to issuer or investor, to change the contractual due date of repayment of principal. For example, Callable bonds, Putable bonds, Asset-backed securities and Mortgage-backed securities.

  • Securities in which coupon payment is fixed periodically based on a formula that depend on some reference rates, prices or exchange rates. For example, Floating-Rate Securities etc.

  • Securities that give choice to the investor to convert the securities into shares. For example, convertible bonds, exchangeable bonds etc.

Posted Date: 9/10/2012 5:31:50 AM | Location : United States







Related Discussions:- Estimating cash flows in valuation process, Assignment Help, Ask Question on Estimating cash flows in valuation process, Get Answer, Expert's Help, Estimating cash flows in valuation process Discussions

Write discussion on Estimating cash flows in valuation process
Your posts are moderated
Related Questions
Profitability Index (PI) : It is a ratio of the present value of the total cash benefits to the present value of the net cash outlay.  The higher the PI, the higher the return.

A procedure that invented in the 1980s for evaluating the processes of a business to find strengths and weaknesses. Specially, activity-based management finds out areas where a bus

Do you believe an increased common stock cash dividend can send a signal to the common stockholders?  If so, what signal might it send? An enhance in cash dividends is often se

Market risk as that portion of total variability of return caused by the alternating Forces of bull and bear markets. When the security index moves upward haltingly for a signifi

What is a marginal cost of capital schedule (MCC)?  Is the schedule always a horizontal line?  Explain. The marginal cost of capital schedule is a graphic representation of the

Call provision is the right of the issuer to call back and retire the issued bonds before the maturity date. The issuer may call the bond and retire the bond by paying

REPORT To: The Directors of Leaminger plc From: A business advisor Date: December 2002 Subject: Acquiring the turbine machine Introduction In financial

a choice is to be made between the two completing proposal which require an equal investment of Rs.50000.00 and we are expected t gererate net cash flow as under. Year Project A

How can we measure Total return- Measuring the Rate of Return Total return can be defined as: Total returns = (Cash payment received + Price change over the period) / Purcha