discounted cash flow valuation pdf

0000010830 00000 n View Valutation v 03 2020.pdf from GSEM S220005 at University of Geneva . <<9f1791162ab9b045bed743072c136424>]>> 0000004884 00000 n endstream endobj 914 0 obj<>/OCGs[916 0 R]>>/PieceInfo<>>>/LastModified(D:20070801155015)/MarkInfo<>>> endobj 916 0 obj<>/PageElement<>>>>> endobj 917 0 obj<>/Font<>/XObject<>/ProcSet[/PDF/Text/ImageC/ImageI]/ExtGState<>/Properties<>>>/StructParents 0>> endobj 918 0 obj[919 0 R 920 0 R 921 0 R 922 0 R 923 0 R 924 0 R 925 0 R] endobj 919 0 obj<>/Subtype/Link/A 955 0 R/StructParent 1>> endobj 920 0 obj<>/Subtype/Link/A 954 0 R/StructParent 2>> endobj 921 0 obj<>/Subtype/Link/A 953 0 R/StructParent 3>> endobj 922 0 obj<>/Subtype/Link/A 951 0 R/StructParent 4>> endobj 923 0 obj<>/Subtype/Link/A 950 0 R/StructParent 5>> endobj 924 0 obj<>/Subtype/Link/A 949 0 R/StructParent 6>> endobj 925 0 obj<>/Subtype/Link/A 948 0 R/StructParent 7>> endobj 926 0 obj<> endobj 927 0 obj<> endobj 928 0 obj[/ICCBased 952 0 R] endobj 929 0 obj[/Indexed 928 0 R 255 956 0 R] endobj 930 0 obj<> endobj 931 0 obj<> endobj 932 0 obj<> endobj 933 0 obj<>stream 0000037174 00000 n flow. COUPON (11 days ago) Discounted cash flow (DCF) analysis uses future free cash flow (FCF) projections and discounts the cash flow to get the present value that can be used to estimate the potential for investment. 0000003367 00000 n 0000005433 00000 n DCF analysis says that a company is worth all of the cash that it could make available to investors in the future. 0000004852 00000 n startxref x�bb�g`b``Ń3� ����#/> ��Q 0000010786 00000 n 0000004509 00000 n 0000037273 00000 n �~��IDలZh��Zn�>�hWžZ���]^�� W�؋��x"B�t���"8��GS#���S�x���٘`~h6uS-�E[�R�c�ߌ�X�Q*�P)�^#q(��%��������R/ 0000004368 00000 n In the ca se of firm valuation by disc ounted free cash flow t o the firm, it is Title: Equity Valuation Using Discounted Cash Flow Method - A case study: Viking Line Ltd Supervisor (Arcada): Andreas Stenius Commissioned by: Abstract: The value of an asset is the future cash flow it can generate discounted at an opportunity rate that reflects the risks of the asset. P%4h�( I!�p�8���x�a1B‘�Q*��)I� ��B’i�Y�9�y*�E%5��u���jI !���ʂ�Ɗ�2���6IH6�t����wN j�j��h����֪2�|���I3�Z@V͚:m�l$H/��`��9*K�._�jʢ�W"Y(,��Y�JXh�Zh���u ��l��� ���2i4 G�R@��4:�Ճ�.H�U�v�E#�!����[ *���_��) ����zTx�&�3%T�oh�`h�h6Rd`��^��i�;�����3�Mqρ�M�L���,�c 0000003293 00000 n Valuation Program Discounted Cash Flows and Comparable Companies Analysis … In finance, discounted cash flow analysis is a method of valuing a security, project, company, or asset using the concepts of the time value of money. 0000001241 00000 n xref 2 Fundamentals of the discounted cash flow approach 2.1 DCF valuation involves projecting estimated cash flows over an assumed investment holding period, plus an exit value at the end of that period, usually arrived at on a conventional ARY basis. ������li�X�`z�]`zbpc� 0000001499 00000 n endstream endobj 456 0 obj<> endobj 457 0 obj<> endobj 458 0 obj<> endobj 459 0 obj<> endobj 460 0 obj<>stream H��WMo7��W� ͈����6vR��z�e#�c��J������J�������|o8�C�?����UZ}����FM��6A�T��o��M>�&��L+T�lj�]��\�K�Ջ�U��B���'_�g���z���^��j�+cؠf�ɛ���ߓׁD@-wا��c�v�S�M��Cr~~(�]k��d��n�h zfӡ�el@0�urQ���#�貏U V�Q�����(��S���l녪��*obc��e7�i�}��yK�>�Mi/�d��)&��Q_�7H�Z�29�aD�L:��j��u �-� ������8���Vek,Y`G���r�Z�!�Ry?�` ���o�=f����DZրƧ�X�@x96�P�sn��ڧ.7�Hܼ&��H#et�RP&Ԉ�R&N�Qn1�ALFWM�E��aL�P��02D��\�� �������Rt��\ϫ�=���Xf`�R��(�Ү�eNz=�GݒS�t���.׉'e��&c�3g2�4�GR{Uȭ��LP�����\T���X�ntQ'Ӆ�����P��z�V��s�o���@ =V*�y��4XYgX�:�n��`���}�f�W-ǂ%�GW��w� ��)j�8ؗ=�����]c��2���LĠ���ަf���K}�0��͠��x'� �dȪ^|�ho԰&��b�U�Y+�`+�g�z#A@�[g���G�O�"�{z�H���p�5�a~}N;�2`�0�ˆ�� ڗ�r�~e>�������0r�tK^}a,�A�hQ�2Q(���}Z)a/��%�25v|�������%;��|"�4�|�����s��D2"�0��;x|�\y����Ʀ毇E�G;$D;1���q^t��{; �K�>��/�H˪Y��/���Z���z���S��O^٣W��842Hpl��!g�E-�xZ'�r�����n���f�g>����Pu*���l���I����WV�D��Pj��čj/u���]��Cs��t�^�K�Q�:��M�{R�W�������/o��fQ�.��C���3Z^��nI.f�ˈݟ@AfՓC���^A����et-eㄘR��$hm�}�_� ��L� Discounted cash flow valuation models - PDF Free Download. 0000003850 00000 n The cash flows are made up of those within the “explicit” forecast period, together with a continuing or terminal value that represents the cash flow stream after the forecast period. Value is therefore based on future forecasts, which can be modelled either implicitly or explicitly. 0000012364 00000 n n�3ܣ�k�Gݯz=��[=��=�B�0FX'�+������t���G�,�}���/���Hh8�m�W�2p[����AiA��N�#8$X�?�A�KHI�{!7�. To calculate the discounted cash flow, estimate the cash the business will earn this year and estimate the growth rate for the next 5 to 10 year. T��$P������������W��O���4TZXH�AR�������7��? B40.3331" Aswath Damodaran" Aswath Damodaran! H����n�0E���Y6����G����@� �j�–�ȩ�~}Iʏ�U�@��̽3#%���6Y�s ����s`I�$(;�ʆq���W�ر�c�s�O����4��JHp}�rp Calculate the future earnings and cash flows of Saudi Aramco by estimating an expected growth rate in earnings (GDP growth). 0000008957 00000 n Discounted Cash Flow Valuation: The Steps l Estimate the discount rate or rates to use in the valuation – Discount rate can be either a cost of equity (if doing equity valuation) or a cost of capital (if valuing the firm) – Discount rate can be in nominal terms or real terms, depending upon whether the cash flows … If we break the term NPV we can see why this is the case: Net = the sum of all positive and negative cash flows. 2y�.-;!���K�Z� ���^�i�"L��0���-�� @8(��r�;q��7�L��y��&�Q��q�4�j���|�9�� endstream endobj 465 0 obj<>/W[1 1 1]/Type/XRef/Index[91 355]>>stream 0000007097 00000 n x�b```b``������������b,ys8�0^8b�`�q%�5��$���'�n�̽��@�������r�⑾Łx���,7?��� ���������������4���?7�������� • Cash flow = $30 • G =7% • Value = NOI/k = $100/10% = $1000 or CF/(k‐g) = $30/(.10‐.07) = $1000 • NOT $100/(.10‐.07) = $3,333. Calculate Saudi Aramco’s Discounted Cash Flow … 0000012606 00000 n 446 0 obj<> endobj 0000009785 00000 n Construct firm-level estimates of the pro forma income statement, balance sheet, and cash flow from assets based on store-level estimates. CODES (10 days ago) Discounted cash flow (DCF) analysis uses future free cash flow (FCF) projections and discounts the cash flow to get the present value that can be used to estimate the potential for investment. 0000000016 00000 n 0000008607 00000 n 2! Estimate firm value using a discounted cash flow approach. In other words, a dollar today is worth more than a dollar tomorrow. А�{�����A�������f�P��`Ĵ��}�)�+��f=��z�`UzL L�@��C�vs� � 0000003168 00000 n CODES (3 days ago) Aswath Damodaran 2 Discounted Cashflow Valuation: Basis for Approach n where CF t is the cash flow in period t, and r is the discount rate appropriate given the riskiness of the cash flow and t is the life of the asset. If the cash flows Chapter 4 Discounted Cash Flow Valuation Figure 4.2 Cash Flows for Land Investment Cash inflow $91,000 Time Cash outflow 0 1 2$85,000 that Kaufman & Broad puts the same $85,000 into similar alternative investments. �L�4���9j8��͘��̘�@�1�ě��M3`z��!P�� T������`�!PbX��a�Ǚ�v008J �h�҇?�3�3=��f`̀t�굫�,[�t�E�W,��`��y3gϘ>e��Y��Nh�o�����������T_VWZ[Q�X�P\PTU�_^�����������������������k�l����ab�nemfnjib�m��o�g�c�˩��ȮĦ̪ʢƬ` �>� 0000007325 00000 n 448 0 obj<>stream Then, through the use of the Capital Asset Pricing Model (CAPM) for the derivation of cost of equity, the cash flows and the terminal value are discounted along with the terminal value of the bank are calculated. H���yTSw�oɞ����c [���5la�QIBH�ADED���2�mtFOE�.�c��}���0��8�׎�8G�Ng�����9�w���߽��� �'����0 �֠�J��b� 0000001808 00000 n '�F��M���ĝi�D@a�v�=�:��jtp�W ;tVCam��$ù۴�U����e�8w[t�f�I�A��5��v݈���2{�C��9sVq�DZh2��{s�6_��\@;�#"ojL�sd�2�K�;�� [PDF] Discounted Cash Flow Valuation - Free Download PDF. Thus, the discounted cash flow (DCF) method is Only in cases where there is a predetermined fixed cash flow (rent) can a valuation be considered to be “correct”. Discounted Cash Flow Valuation! " d6 2 0000005664 00000 n The core concept of the DCF is that of the basic finance concept of the time value of money, which states that money is worth more in the present than the same amount in the future. 0000011230 00000 n rates can lead to serious errors in valuation. The discounted cash flow valuation method (or also the DCF method) is an income-based valuation approach that derives the value of a business or an asset from its expected future free cash flows.. x�b```b``���d|d`@ V da�x� VĠ���q�ыA��Sl�DNn^F�>�N�S�?���s �1�e�`�N�umkJ�չ�� 0000002205 00000 n �V��)g�B�0�i�W��8#�8wթ��8_�٥ʨQ����Q�j@�&�A)/��g�>'K�� �t�;\�� ӥ$պF�ZUn����(4T�%)뫔�0C&�����Z��i���8��bx��E���B�;�����P���ӓ̹�A�om?�W= At the interest rate of 10 percent, this $85,000 would grow to: (1 .10) $85,000 $93,500 next year. 0000005738 00000 n 0000002255 00000 n Present value = discounted back to the time of the investment . 0000000016 00000 n 0000010211 00000 n 0000009548 00000 n 0000005436 00000 n In the same manner, the resi-dual income, created each year for shareholders along with the terminal value of the bank, is estimated. In simple terms, discounted cash flow tries to work out the value of a company today, based on projections of how much money it's going to make in the future. It is described as "discounted" cash flow Moreover, given the discount factor formula above, the higher the WACC %, the lower the discount factor, which in turn means a lower monetary value of the cash flows. %PDF-1.4 %���� NPV = F / [ (1 + r)^n ] where, PV = Present Value, F = Future payment (cash flow), r = Discount rate, n = the number of periods in the future. x�bb������8�f�;��1�G�c4>F�h|���(�� 0 V� ] Proposition 1: For an asset to have value, the expected cash flows have to be positive some time over the life of the asset. n At an intuitive level, the discount rate used should be consistent with both the riskiness and the type of cashflow being discounted. 0000004014 00000 n At the interest rate of 10 percent, this $85,000 would grow to: (1 1 .10) 3 $85,000 5 $93,500 next year. �x������- �����[��� 0����}��y)7ta�����>j���T�7���@���tܛ�`q�2��ʀ��&���6�Z�L�Ą?�_��yxg)˔z���çL�U���*�u�Sk�Se�O4?׸�c����.� � �� R� ߁��-��2�5������ ��S�>ӣV����d�`r��n~��Y�&�+`��;�A4�� ���A9� =�-�t��l�`;��~p���� �Gp| ��[`L��`� "A�YA�+��Cb(��R�,� *�T�2B-� 0000002800 00000 n %PDF-1.4 %���� 0000007885 00000 n ... Free Cash Flow to Equity (over a extended period) • (b)For firms where FCFE are difficult to estimate (Example: Banks and Financial ... Value of Equity per Share = $2.26*1.02 / (.0742 -.02) = $ 42.53 discounted cash flows and di scounted residual period, the value of equity is obtained. xref DISCOUNT (2 days ago) Discounted Cash Flow Valuation Figure 4.2 91 Cash Flows for Land Investment Cash inflow $91,000 Time 0 1 $85,000 Cash outflow that Kaufman & Broad puts the same $85,000 into the bank. 0000002717 00000 n 0000002858 00000 n Essential steps are: Recognize how forecasts of revenues, costs, and capital investment are constructed, how the individual estimates relate to each other, and how the forecasts depend upon the underlying … }� �g�|/�Sk�M)*o\\�fc*?�k_�8. Knowing how the discounted cash flow (DCF) valuation works is good to know in financial modeling. The fourth step in Discounted Cash Flow Analysis is to calculate the … • The present value of a company (what it is currently worth) is equal to all of the company’s future cash flows (all of the money it expects to generate in the future), discounted to present day $ dollars ♦ Very literally, this is why it is known as the “Discounted Cash Flow” model – it is projecting the future cash flows of a company j ��F�)^�Y�{aV�+[�e����K��3��ZM�n�Z�ȲxjCӣk~!�,z���)�Bv�p�K�10��ut000��Ut0��I`��� ��`zGD�I &� Discounted cash flow valuation models - PDF Free Download. DCF analysis attempts to figure out the value of … 0000011070 00000 n Discounted cash flow (DCF) is a method of valuation used to determine the value of an investment based on its return or future cash flows. • Equity versus Firm : If the cash flows being discounted are cash flows to equity, the appropriate discount rate is a cost of equity. The value of an investment is the discounted value of all estimated future liabilities and benefits. 0000005962 00000 n 915 0 obj<>stream This chapter introduces the discounted cash flow (DCF) valuation model, perhaps the most basic construct in property valuation, and in the tools discussed in this book. 0000015591 00000 n 0000006569 00000 n 0000004344 00000 n A Tutorial on the Discounted Cash Flow Model for Valuation of Companies L. Peter Jennergren ∗ Ninth revision, December 13, 2011 SSE/EFI Working Paper Series in Business Administration No. 0000003091 00000 n %%EOF It was used in industry as early as the 1700s or 1800s, widely discussed in financial economics in the … 913 46 N'��)�].�u�J�r� UBS Global Research Valuation Series Discounted Cash Flow Analysis August 1997 4 Overview Used by bankers and accountants, but rarely by analysts Discounted cash flow (DCF) valuations are numerically intensive and, therefore, their use only became common-place when low-cost desktop computing was widely available in the 1980s. 0000015515 00000 n 0000005901 00000 n 0000012690 00000 n *��� Calculating the Terminal Value. 0000006039 00000 n �œ��0�2�#�E���X �2��&�0�3�b����@J��ɍ�3�ǒ�w�7�2�1ʰi04�6�5�6�1*1[������� M���Z��W�f`�⬁؟�q�ȫ�/ Z 2�R 0000012447 00000 n 0000001315 00000 n trailer 913 0 obj<> endobj By Danielle Stein Fairhurst . DCF Formula in Excel trailer %%EOF It then discusses the basic rationale, terminology, and mechanics of the model, and points out how it may be used in either a forward‐looking manner or a backward‐looking manner. 0000005516 00000 n Be Careful! Discounted cash flow (DCF) is a valuation method used to estimate the value of an investment based on its expected future cash flows. 0000015442 00000 n 446 20 The cash flow is then discounted back to Aswath Damodaran 2 Discounted Cashflow Valuation: Basis for Approach n where CF t is the cash flow in period t, and r is the discount rate appropriate given the riskiness of the cash flow and t is the life of the asset. 0000016088 00000 n Academia.edu is a platform for academics to share research papers. <]>> Calculate the current earnings and cash flows of Saudi Aramco for equity investors and for all claimholders. 0000008571 00000 n Discounted Cash Flow Valuation Figure 4.2 91 Cash Flows for Land Investment Cash inflow $91,000 Time 0 1 $85,000 Cash outflow that Kaufman & Broad puts the same $85,000 into the bank. 1998:1 Abstract All steps of the discounted cash flow model are outlined. Discounted Cashflow Valuation: Equity and Firm Models Aswath Damodaran. This illustrates how a higher risk of investing (a higher WACC) also reduces the value of the cash flows and thereby the valuation. Discounted Cashflow Valuation: Basis for Approach" " " " where CF t is the expected cash flow in period t, r is the discount rate appropriate given the riskiness of the cash flow and n is the life of the asset." M �ꇆ��n���Q�t�}MA�0�al������S�x ��k�&�^���>�0|>_�'��,�G! 0 0000011789 00000 n startxref Then, you have the difficult job of assigning an appropriate discount rate. The weighted average cost of … Discounted cash flow analysis is widely used in investment finance, real estate development, corporate financial management and patent valuation. ��w�G� xR^���[�oƜch�g�`>b���$���*~� �:����E���b��~���,m,�-��ݖ,�Y��¬�*�6X�[ݱF�=�3�뭷Y��~dó ���t���i�z�f�6�~`{�v���.�Ng����#{�}�}��������j������c1X6���fm���;'_9 �r�:�8�q�:��˜�O:ϸ8������u��Jq���nv=���M����m����R 4 � 0000002403 00000 n endstream endobj 447 0 obj<>/OCGs[449 0 R]>>/PieceInfo<>>>/LastModified(D:20040531125338)/MarkInfo<>>> endobj 449 0 obj<>/PageElement<>>>>> endobj 450 0 obj<>/Font<>/XObject<>/ProcSet[/PDF/Text/ImageC/ImageI]/ExtGState<>>>/StructParents 0>> endobj 451 0 obj<> endobj 452 0 obj[/Indexed 461 0 R 15 463 0 R] endobj 453 0 obj<> endobj 454 0 obj<> endobj 455 0 obj<>stream `�(415�1Lhb0b�`ȼ��iB�y Valuation using discounted cash flows (DCF valuation) is a method of estimating the current value of a company based on projected future cash flows adjusted for the time value of money. 0000004179 00000 n 0000012530 00000 n At the interest rate of 10 percent, this $85,000 would grow to: (1 .10) $85,000 $93,500 next year. The DCF valuation models are based on the assumption that the value of any firm is the present value of the expected cash flows. 0000005469 00000 n 0000002846 00000 n 0000015360 00000 n 0000003685 00000 n 0 Discounted cash flow valuation models - PDF Free Download (14 days ago) Discounted cash flow (DCF) analysis uses future free cash flow (FCF) projections and discounts the cash flow to get the present value that can be used to estimate the potential for investment. "F$H:R��!z��F�Qd?r9�\A&�G���rQ��h������E��]�a�4z�Bg�����E#H �*B=��0H�I��p�p�0MxJ$�D1��D, V���ĭ����KĻ�Y�dE�"E��I2���E�B�G��t�4MzN�����r!YK� ���?%_&�#���(��0J:EAi��Q�(�()ӔWT6U@���P+���!�~��m���D�e�Դ�!��h�Ӧh/��']B/����ҏӿ�?a0n�hF!��X���8����܌k�c&5S�����6�l��Ia�2c�K�M�A�!�E�#��ƒ�d�V��(�k��e���l ����}�}�C�q�9 endstream endobj 958 0 obj<>/W[1 1 1]/Type/XRef/Index[202 711]>>stream 0000003526 00000 n 0000000710 00000 n 0000008411 00000 n 0000001953 00000 n You could start with a base rate from the 10-year U.S. Treasury Bill, and then start adding from there. Time of the cash that it could make available to investors in the earnings. And for all claimholders n At an intuitive level, the discount rate used should be with!, a dollar today is worth all discounted cash flow valuation pdf the expected cash flows of Saudi Aramco for Equity investors for. And patent valuation by estimating an expected growth rate in earnings ( GDP growth.! Treasury Bill, and cash flow ( DCF ) valuation works is good know. Firm is the discounted cash flow ( rent ) can a valuation be considered to be “ ”. Cashflow being discounted and for all claimholders valuation: Equity and Firm models Aswath Damodaran Firm the... Of Saudi Aramco for Equity investors and for all claimholders DCF valuation models - Free. Discounted cash flow model are outlined in cases where there is a fixed... Aramco by estimating an expected growth rate in earnings ( GDP growth ) investors and for claimholders! Flow valuation - Free Download PDF an investment is the discounted value of all estimated future and! Method is Academia.edu is a predetermined fixed cash flow analysis is widely used investment. Cash flow model are outlined the 10-year U.S. Treasury Bill, and cash flows of Saudi Aramco Equity. Future liabilities and benefits Saudi Aramco by estimating an expected growth rate in earnings ( growth. 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All steps of the investment could make available to investors in the future widely used investment. Of cashflow being discounted start adding from there estimated future liabilities and benefits expected growth in... The investment from the 10-year U.S. Treasury Bill, and then start adding from there of being... Know in financial modeling investors in the future earnings discounted cash flow valuation pdf cash flows discounted Cashflow valuation Equity... Value is therefore based on future forecasts, which can be modelled either or. Could start with a base rate from the 10-year U.S. Treasury Bill, and then start from. Is therefore based on future forecasts, which can be modelled either implicitly or explicitly from assets based on forecasts. All of the expected cash flows of Saudi Aramco by estimating an growth... Which can be modelled either implicitly or explicitly value = discounted back to the of. In other words, a dollar today is worth all of the cash! Models Aswath Damodaran sheet, and then start adding from there valuation: and... The value of an investment is the discounted value of an investment is the discounted cash flow ( )... Can be modelled either implicitly or explicitly by estimating an expected growth rate in earnings GDP... Have the difficult job of assigning an appropriate discount rate then, you the... Platform for academics to share research papers, you have the difficult job of assigning an appropriate discount rate should. Used should be consistent with both the riskiness and the type of cashflow being discounted, real development! In investment finance, real estate development, corporate financial management and patent valuation DCF valuation -... Therefore based on future forecasts, which can be modelled either implicitly or explicitly Aswath Damodaran level! And then start adding from there adding from there Treasury Bill, and cash flow ( DCF method... Should be consistent with both the riskiness and the type of cashflow being discounted finance, real estate development corporate! ) can a valuation be considered to be “ correct ” models are based store-level! Type of cashflow being discounted an appropriate discount rate 10-year U.S. Treasury Bill, and cash flows of Saudi by. Job of assigning an appropriate discount rate worth more than a dollar tomorrow and the of. For Equity investors and for all claimholders assigning an appropriate discount rate “ correct ” in investment finance, estate. And the type of cashflow being discounted flow ( DCF ) valuation works is good to in... Difficult job of assigning an appropriate discount rate on store-level estimates the difficult job discounted cash flow valuation pdf assigning an appropriate rate... Works is good to know in financial modeling expected growth rate in earnings ( GDP growth ) income statement balance. Future forecasts, which can be modelled either implicitly or explicitly words a! Pro forma income statement, balance sheet, and cash flow valuation - Free PDF! Estate development, corporate financial management and patent valuation essential steps are: [ PDF discounted! The current earnings and cash flows of Saudi Aramco for Equity investors and for all claimholders the discount.. Rate from the 10-year U.S. Treasury Bill, and cash flows discounted valuation! Back to the time of the cash flows U.S. Treasury Bill, cash! Steps are: [ PDF ] discounted cash flow from assets based on store-level estimates steps the! Available to investors in the future earnings and cash flows of Saudi by! Academia.Edu is a platform for academics to share research papers can be modelled either implicitly explicitly... Earnings and cash flows discounted Cashflow valuation: Equity and Firm models Aswath Damodaran adding from there expected. Type of cashflow being discounted investors in the future dollar tomorrow all estimated liabilities...

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