1Discounted Cash Flow Valuation: The Basic Procedures and Concepts Underlying Spreadsheet Valuation Constitute the Springboard to our Approach of Analyzing Flexibility Under Uncertainty

The focus of this book is on the valuation of properties and development projects in the face of uncertainty. We concentrate particularly on management and design flexibility, which is the ability to respond to circumstances in order to reduce downside risks and take advantage of upside opportunities.

To this end, everything in this book builds on and uses the basic discounted cash flow (DCF) model. So, to ensure we’re all on the same page, and using the same terminology and basic understanding about this tool, this first chapter introduces and reviews the DCF model, and thereby sets the stage for all that follows.

First, we discuss why it makes sense for us to focus on the DCF model. ...

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