Corporate Value Creation: An Operations Framework for Nonfinancial Managers

APPENDIX B

Business Valuation Models

INTRODUCTION

In this appendix, models are developed that calculate the present value of various cash flow streams frequently encountered when valuing business plans. The theoretical framework for these models was developed in Appendix A. Where possible the models refer to the equation(s) in Appendix A that form the basis for the various business models that follow.

STREAM OF DISTINCT CASH FLOWS¹

FIGURE B-1 Stream of Distinct Cash Flows

Application

Equation [B-1] can be used to calculate the present value of any stream of cash flows that are based on estimates or growth assumptions for each period. In this sense [B-1] is completely general and in fact is the starting point for developing special cases such as the perpetual and finite models. Equation [B-2] is simply the expanded form of Equation [B-1].

Appendix A Reference:

Equations [A-1] and [A-2]

Where:

PV =	Present value of a stream of cash flows
	Sum of the periodic cash flows in increments ...