Discounted cash flow method of valuing a firm

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Reference no: EM131843212

There are 4 pieces in the discounted cash flow method of valuing a firm: 1) cash flows from assets currently in place; 2) expected growth in cash flows from new high profit/high return projects; 3) duration of the new projects; and 4) the discount rate. Absent financial distress, insurance has no effect on #4 and only decreases #1. Still, growing firms buy insurance and increase their value by doing so. How can this be the case? (Hint: Think of the difference between theory and practice.)

Reference no: EM131843212

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