Noble Prize winner Fama stated as follows: "Our main point is that the cost of capital estimates used to discount cash flows are also unavoidably imprecise.Our message is that uncertainty of this magnitude ... implies woefully imprecise estimates of the cost of equity." Those imprecise estimates lead, of course, to imprecise estimates of the value of a company, since DCF calculations use the "woefully" imprecise cost of equity and the "wing and a prayer" estimates of future cash flows. Assess Fama's statement. 

How do practitioners handle these issue?

Answer rating: 100% (QA)

Eugene Fama a Nobel Prizewinning economist made an important observation about the imprecision of cost of capital estimates used in discounting cash flows for valuation purposes His main point is that ... View the full answer