This paper focuses adaptations to the discount cash flow (DCF) method when valuing forecasted
cash flows that are biased measures of expected cash flows. I imagine a simple setting where the
expected cash flows equal the forecasted cash flows plus an omitted downside. When the
omitted downside is temporary, the adjustment is to deflate the forecasts and to set the discount
rate equal to the cost of capital. However, when the downside is permanent, the adjustment is to
deflate the cash flows and to increase the discount rate so that it includes the cost of capital plus
the probability of a downside.