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However, there are disadvantages of the DCF model. Firstly, changes in future flows will result in volatile outputs. It is difficult to estimate cash flows
However, there are disadvantages of the DCF model. Firstly, changes in future flows will result in volatile outputs. It is difficult to estimate cash flows more few years into the future, and forecasting cash flows for a large number of ye even more difficult. Secondly, DCF analysis does not address the option value its model, even when the option may be a critical part of investment decis multiplies the probability of success (and conversely failures) with their asso costs to arrive at a expected cash flow, when in reality as this case shows have the option not to proceed with producing the sequel and incur the negative flows. Lastly, DCF does not allow for new information to be quickly assimilate capitalized upon
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