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Valuation: Measuring and Managing the Value of Companies, Fifth Edition
Chapter 35 Solutions
Valuing Cyclical Companies
1. The volatility of DCF is much lower than that of the profits. This difference arises
because the DCF is a sum of values, which may be potentially infinite, and it will vary
2. Analysts’ projections of the profits of cyclical companies tend not to be accurate.
The most common explanation for these biases is that the analyst fears retaliation for
unfavorable forecasts in the form of managers curtailing other business with the analyst’s
3. In reality, analysts and investors will never have perfect foresight. At any point, the
company may be either continuing its old cycle or breaking into a new cycle. The
4. The three potential reasons are (1) cash is generally more available when prices are high,
(2) it is easier to get approval from boards of directors for investments when profits are
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