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AbstractPurpose -The purpose of this paper is to discuss the questions arising from the use of discounted cash flow (DCF) method in the context of the valuation of a Portuguese subsidiary of a German firm. The process ended up in courts. Expert valuation was called. Two points are of particular relevance. First, given the past performance of the company and the external environment it faced, what would be a reasonable growth rate for free cash flow in the residual value period. Second, what questions arise form the assumption of seeing the subsidiary as a going concern, given that the German parent company had been opening new factories in India, China, Romania and Slovakia, and its presence in Portugal was far from guaranteed. Design/methodology/approach -The paper is based on case study which rests on a real legal and financial business situation. The case is used to illustrate the conceptual questions related to the use of the DCF method in valuing closely held firms, particularly the very significant impact of terminal value in the process of equity valuation. Findings -It was found that very small variations in the growth rate assumed for the residual value period make a great difference in share valuation. Thus, the work of experts had to be very finely balanced, and the judge, when deciding on the fair value to be paid to the plaintiff based on expert opinion, should give careful consideration to scenarios. Practical implications -A relevant point of the paper is to highlight the effect on business valuation of potential growth rates forecasted for the perpetual growth phase. That rate is, in this case influenced by eventual location changes that can result from globalization of industrial activity. Portuguese shareholders in foreign controlled joint ventures, and all the other stakeholders are facing important challenges from a new world economic order, and this case clearly illustrates some characteristics of this trend. Originality/value -The paper is useful for managers that deal with business valuation cases that end in courts, by highlighting cash flow based methods and its central assumptions, and exploring critical areas that influence the final outcome of a lawsuit that...
