MGMP 543, FINANCE
Topic 18 – Expected Cashflows, Real Options, APV
Professor Kunal Sachdeva
1
,Today’s Topics – Cashflows
1. Uncertainty of Cashflows
2. Real Options
3. Adjusted Present Value (APV)
2
, Uncertainty of Cashflows
How do we think about uncertainty in cashflows?
3
, Motivation: Relating Back to our PV
• To this point, we have only considered cashflows that were guaranteed
$
𝐶!
𝑃𝑉 = $ !
1+r
!"#
• We’ve considered cashflows for different assets
1. Debt (coupons and principal)
2. Equity (dividends and sale price)
3. To the entire firm (free cash flows)
We need a way to think about the uncertainty in these cashflows!
4
Topic 18 – Expected Cashflows, Real Options, APV
Professor Kunal Sachdeva
1
,Today’s Topics – Cashflows
1. Uncertainty of Cashflows
2. Real Options
3. Adjusted Present Value (APV)
2
, Uncertainty of Cashflows
How do we think about uncertainty in cashflows?
3
, Motivation: Relating Back to our PV
• To this point, we have only considered cashflows that were guaranteed
$
𝐶!
𝑃𝑉 = $ !
1+r
!"#
• We’ve considered cashflows for different assets
1. Debt (coupons and principal)
2. Equity (dividends and sale price)
3. To the entire firm (free cash flows)
We need a way to think about the uncertainty in these cashflows!
4
