Discounted cash flow: accounting for uncertainty

Valuation is the process of estimating price. The methods used to determine value attempt to model the thought processes of the market and thus estimate price by reference to observed historic data. This can be done using either an explicit model, that models the worth calculation of the most likely bidder, or an implicit model, that that uses historic data suitably adjusted as a short cut to determine value by reference to previous similar sales. The former is generally referred to as the Discounted Cash Flow (DCF) model and the latter as the capitalisation (or All Risk Yield) model. However, regardless of the technique used, the valuation will be affected by uncertainties. Uncertainty in the comparable data available; uncertainty in the current and future market conditions and uncertainty in the specific inputs for the subject property. These input uncertainties will translate into an uncertainty with the output figure, the estimate of price. In a previous paper, we have considered the way in which uncertainty is allowed for in the capitalisation model in the UK. In this paper, we extend the analysis to look at the way in which uncertainty can be incorporated into the explicit DCF model. This is done by recognising that the input variables are uncertain and will have a probability distribution pertaining to each of them. Thus buy utilising a probability-based valuation model (using Crystal Ball) it is possible to incorporate uncertainty into the analysis and address the shortcomings of the current model. Although the capitalisation model is discussed, the paper concentrates upon the application of Crystal Ball to the Discounted Cash Flow approach.

A wind-tunnel study of flow distortion at a meteorological sensor on top of the BT Tower, London, UK

High quality wind measurements in cities are needed for numerous applications including wind engineering. Such data-sets are rare and measurement platforms may not be optimal for meteorological observations. Two years' wind data were collected on the BT Tower, London, UK, showing an upward deflection on average for all wind directions. Wind tunnel simulations were performed to investigate flow distortion around two scale models of the Tower. Using a 1:160 scale model it was shown that the Tower causes a small deflection (ca. 0.5°) compared to the lattice on top on which the instruments were placed (ca. 0–4°). These deflections may have been underestimated due to wind tunnel blockage. Using a 1:40 model, the observed flow pattern was consistent with streamwise vortex pairs shed from the upstream lattice edge. Correction factors were derived for different wind directions and reduced deflection in the full-scale data-set by <3°. Instrumental tilt caused a sinusoidal variation in deflection of ca. 2°. The residual deflection (ca. 3°) was attributed to the Tower itself. Correction of the wind-speeds was small (average 1%) therefore it was deduced that flow distortion does not significantly affect the measured wind-speeds and the wind climate statistics are reliable.

Particle image velocimetry measurements of turbulent flow within outdoor and indoor urban scale models and flushing motions in urban canopy layers

We investigate the spatial characteristics of urban-like canopy flow by applying particle image velocimetry (PIV) to atmospheric turbulence. The study site was a Comprehensive Outdoor Scale MOdel (COSMO) experiment for urban climate in Japan. The PIV system captured the two-dimensional flow field within the canopy layer continuously for an hour with a sampling frequency of 30 Hz, thereby providing reliable outdoor turbulence statistics. PIV measurements in a wind-tunnel facility using similar roughness geometry, but with a lower sampling frequency of 4 Hz, were also done for comparison. The turbulent momentum flux from COSMO, and the wind tunnel showed similar values and distributions when scaled using friction velocity. Some different characteristics between outdoor and indoor flow fields were mainly caused by the larger fluctuations in wind direction for the atmospheric turbulence. The focus of the analysis is on a variety of instantaneous turbulent flow structures. One remarkable flow structure is termed 'flushing', that is, a large-scale upward motion prevailing across the whole vertical cross-section of a building gap. This is observed intermittently, whereby tracer particles are flushed vertically out from the canopy layer. Flushing phenomena are also observed in the wind tunnel where there is neither thermal stratification nor outer-layer turbulence. It is suggested that flushing phenomena are correlated with the passing of large-scale low-momentum regions above the canopy.