Probabilistic Business Failure Prediction in Discounted Cash Flow Bond and Equity Valuation

• Published in: IDEAS Working Paper Series from RePEc
• Main Author: Skogsvik, Kenth
• Format: Paper
• Language: English
• Published: St. Louis Federal Reserve Bank of St. Louis 01.01.2006
• Subjects: Business failures; Cash flow forecasting; Discount rates; Discounted cash flow; Loss recognition; Valuation

The purpose of the paper is to incorporate probabilistic business failure predictions in discounted cash flow (DCF) models for the valuation of company bonds and owners´ equity. The analysis shows that period-specific probabilities of business failure are instrumental to the assessment of expected v...