Obtaining a realistic estimate of Bitcoin's intrinsic value is tricky because it is not an asset that generates a periodic cash flow
, such as interest or rental income.
If interest rates rise in the future, as many observers expect, Paula will be able to buy higher yielding bonds, raising her periodic cash flow
from investment interest.
Reinvestment risk: This emanates from the probability that the periodic cash flow
from bonds will be reinvested at a rate lower than the coupon rate of the bond.
Essentially, the technique identifies two of the most significant variables affecting a market value forecast using the discounted cash flow approach, i.e., periodic cash flow
forecasts and the terminal value/ reversion forecast.
Each has an initial investment (t = 0); each has periodic cash flow
(although the bond is fixed), and each has a terminal value (again, the bond is fixed).
In Equation 1, the subscripted CFs represent the periodic cash flows
. Note that the initial C[F.sub.0] is assumed to occur today (it is discounted for zero periods), and recall that its value is negative.
The analysis presented herein extends previous work by comparing periodic cash flows
, cost to the State, and rate of return in response to changes in variables both across and within capital-reimbursement systems; and by the use of present value techniques to project and compare cost to the State.
The indicated value from DCF analysis is equivalent to the present value of the periodic cash flows
plus the reversion (at a single discount rate).
Compute the periodic cash flows
. Cash flow estimates may be pretax or after tax, depending on the appraisal's requirements.