If you learned valuation techniques more than a few years ago, chances are you are due for a refresher course. You were certainly taught that the best practice for valuing operating assets—that is, an existing business, factory, product line, or market position—was to use a discounted-cash-flow (DCF) methodology. That is still true. But the particular version of DCF that has been accepted as the standard over the past 20 years—using the weighted-average cost of capital (WACC) as the discount rate—is now obsolete.
A version of this article appeared in the May–June 1997 issue of Harvard Business Review.
