Enterprise Valuation Roundtable
This roundtable asks a number of questions: How does the stock market value companies? How do public companies evaluate major investment decisions? What role is private equity playing in today's pricing process? Recommendations include CFOs targeting their desired investors with a strategic dialogue that provides information about the entire distribution of possible outcomes, not just a single “point” earnings forecast.

The Case for Real Options Made Simple
This article argues that the real options (RO) valuation approach and DCF rely on the same assumptions about the future, but whereas RO explicitly states them, they are implicit in DCF. Thus, analysts who employ the probabilistic modeling of RO can also improve their understanding of DCF. And much of the complexity of RO can be eliminated by separating the calculations of the expected values and the discount rates.

Valuing the Debt Tax Shield
The authors address a number of issues surrounding valuation of the tax shield, present three alternative valuation approaches, and illustrate their practical implications. Each method relies on different assumptions about the risk of debt tax shields. The key to accurate valuation is choosing the method whose assumptions are most consistent with the circumstances of the particular company being evaluated.

Measuring Free Cash Flows for Equity Valuation: Pitfalls and Possible Solutions
Investors are increasingly using cash flow to value companies and transactions. This article identifies potential problems with all commonly used free cash flow metrics and offers guidance in how to address them. It proposes two different metrics that are designed for use in multiples-based and multi-period DCF valuations, when it is appropriate to use each and how to adjust reported (GAAP) numbers.

Discount Rates in Emerging Markets: Four Models and an Application
In emerging markets, there is no single widely used model for estimating required returns on equity. This article sheds some light on this issue by presenting four practical and easy-to-implement models. It illustrates them by discussing a case study in which a company in a developed market (ExxonMobil) evaluates an investment opportunity (oil exploration) in an emerging market (Argentina).

Rail Companies: Prospects for Privatization and Consolidation
The coming privatization and consolidation of the rail industries in Europe and Asia - funded by eager global capital markets - will enhance their access to capital, provide more efficient transportation systems and stimulate the growth of the participating economies. Regardless of business model, any railway company seeking to tap the capital markets must make a strong commitment to corporate governance principles.

A Real Option in a Jet Engine Maintenance Contract
Many business-to-business contracts include options or option-like provisions. This article presents a case study of an airline that has purchased a ten-year, fixed-price engine maintenance contract from the manufacturer giving it the right, but not the obligation, to extend the contract for an additional five years. Standard option pricing techniques are used to estimate the NPV of accepting the manufacturer's proposal.

A Practical Method for Valuing Real Options: The Boeing Approach
The Boeing Company has developed a state-of-the-art real options approach that uses the language and framework of standard DCF analysis. While incorporating the value of managerial flexibility, it is also simple and transparent, allowing for more insightful strategic planning and evaluation of the risks of probable outcomes. Most important, the method helps corporate managers acquire a “real options way of thinking.”

Accounting for Employee Stock Options and Other Contingent Equity Claims: Taking a Shareholder's View
This paper proposes a way of accounting for employee stock options and other contingent equity claims that upholds the principle of “faithfully reporting to shareholders.” The conversion of such claims into common equity almost always involves settlement at prices that differ from the market price. Yet, in these cases, Generally Accepted Accounting Principles do not reflect this fundamental principle.