Posted: February 16th, 2022
Does the excess cash represent a return on the seller’s investment?
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Learning Goal: I’m working on a economics writing question and need an explanation and answer to help me learn.Does the excess cash represent a return on the seller’s investment? From a valuation standpoint, theoretically, if we used the discounted cash flow method or capitalized cash flows method we would arrive at the same $4.8 million value, didn’t we use the same cash as part of the valuation of cash flows? Is this a double-dip? I understand the mechanical nature of why valuation analysts add this back; however, is it correct?
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