CEQ Method Valuation Model

Valuation by the CEQ Method based on Discrete Scenario Cash Flow Forecast

betacash flowsceqcertain equivalententrepreneurfinancepresent valuesprivate equityvaluation

Description
In the Certain Equivalent (CEQ) Method, expected cash flows of financial claims are valued. Also, risky cash flows are adjusted
to their certain equivalent by CAPM (from σri to σci). The risk free rate is the discount rate. (Diego Zunino, April 2011)

=> It is easier to implement than RADR for new ventures
=> You have the same results with consistent assumptions as RADR (risk adjusted discount rate method)

(www.quizlet.com)

This model enables you to compute, over 5 years:

- The Estimated Cash Flow For the Project
- The Standard Deviation of Cash Flows
- The Market Risk Premium
- The Present Value of Expected Cash Flows and the Sum of PVs

- The Annualized Required Return
- The Standard Deviation of Returns
- Covariance with Market
- Beta

INPUTS:
- Cash Flows (Success Scenario, Expected Scenario, Failure Scenario) - Amount year 0 to 5 + Probability
- Risk free rate
- Market rate
- Market Standard Deviation
- Market Correlation

Note: For the RADR method see here: https://www.eloquens.com/method/M0Vibp/radr-method-valuation-model

From "Entrepreneurial Finance", by Janet Kilholm Smith, Richard L. Smith and Richard T. Bliss

Purchase the book here: https://www.amazon.fr/dp/0804770913

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1 Excel Model

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