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Technology Stocks : Ascend Communications (ASND)

ASND 220.58

+5.0%

3:59 PM EST

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To: Immi who wrote (48814)	6/17/1998 1:54:00 AM
From: Chuzzlewit	Read Replies (1) of 61433

Immi, I use DCF on a daily basis, so I can speak with some authority. DCF stands for discounted cash flow. Basically, you generate a long term cash flow projection and then discount those cash flows using a risk-adjusted discount rate. The risk is generally defined as the standard deviation of those cash flows. The alternative is to calculated the firm's average weighted cost of capital (WACC) and proceed from there. The problem with the approach is that projections become very murky when you are dealing with a rapidly evolving industry. Who knows what products will be out there ten years hence, and who knows what the Asian economic situation will be then. In other words, this is far from a simple mathematical operation, and depends on a great number of other operations and assumptions. There is an excellent text on DCF applied to corporate valuations entitled "Valuation" by Copeland, Koller and Murrin. This is a 500+ page text. Another excellent source of information from the people who perfected the technique: Grant and Ireson "Engineering Economy" originally published in 1930 but in its eight or ninth edition now. Hope this helps at least a little bit. TTFN, CTC

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