Discounted Cash Flow: A Guide for the International Arbitration Practitioner

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Ronnie Barnes discusses quantum issues that arise in arbitrations, with a focus on the “discounted cash flow” valuation methodology.

Ronnie Barnes discusses the quantum issues, or more precisely, the damages methodologies that arise in international arbitration. This article provides an overview of one particular valuation methodology—discounted cash flow (DCF)—that is a feature of many quantum expert reports.

Dr. Barnes outlines the basic premises that underpin the DCF methodology and describes the details that are most important for an arbitration practitioner to understand, including:

  • What is meant by a “risk-free” cash flow.
  • How to incorporate risk into a DCF analysis.
  • How the capital asset pricing model (CAPM) can be used to operationalize the task of discounting risky cash flows.
  • What complexities arise in a valuation setting as a result of the fact that projects and companies are typically financed by a mix of equity and debt.
  • What additional challenges result in an international setting, considering situations with multiple countries with varied currencies.

This chapter was published by the American Review of International Arbitration in December 2020.


The views expressed in this chapter are solely those of the author, who is responsible for the content, and do not necessarily represent the views of Cornerstone Research.

Discounted Cash Flow: A Guide for the International Arbitration Practitioner

Author

  • London

Ronnie Barnes

Vice President