I'm hardly an expert, but if we examine what Warren Buffett does, we may get an idea.
Basically, Buffett determines what an instrument is worth compared to a bond. First (1) he determine's the instrument's future worth over a period of 'x' years.
After that (2), he _discounts_ this instrument by comparing it to the U.S. long bond. Discounting is a method used to compare to instruments that grow at different rates.
If you had $100 that did not grow at all and held it for one year, it would have a future value of $100 after that year. However, if you discounted it over one year at 10% (akin to comparing it with a 10% bond), you'll get something like 90 bucks ($90.91). This means that if you wanted to have a future $100 amount in 1 year, you should only pay around 90 bucks for it today.
Conversely, if your $100 grew 20% in one year, it would have a future one year value of $120. Discounted by 10%, this would yield $109.09. Again, this would mean that if you wanted to ensure a 1 year future worth of $120 bucks you should only pay $109.09 today.
Buffett's intrinsic value calculations is based on one massive assumption. That is, that the U.S. long bond yield is the best and safest long-term rate possible in corporate America; he's probably right.
The answer to your cash question is: it depends. It depends on what the money will be doing after 3 months and it also depends for how long will it be doing what it's doing. I hope that's not too confusing.
Basically, lets assume that after 3 months the bonds just sit as dead cash. To determine it's intrinsic value after 1 year you would find the future value of a bond that grew at 'x'% for 3 months and then grew at 0% for the next 9 months. This would yield a future value for one year. You can then discount (compare it with the long bond) it back at current interest rates. However, with such a short-term outlook the difference between it's intrinsic value and flat $100 value will be negligible, but over longer terms, the difference would be tremendous.
So, in the first case where, say $100 is growing at 10% for 3 months and then sits dead for the next 9 months, it's future 1 year value would be around $100 + $100 x (3 months x 10%/12 months) x 3 = $102.50. Discounting back by the U.S. long bond (lets assume a nice round 6%), you get an intrinsic value of $96.70. This is after 1 year. If it sits as dead cash for longer than 9 months, this value will drop. Alas, the ravages of time works both ways - do nothing and your buying power erodes.
It is probably safe to use the long bond rate at 6% for one year because the time span is so short. However, Buffett realizes that _historically_ the long bond is much higher and has even been twice as high. This would _dramatically_ change your discounting process because a 5% yeild and 14% yeild results in _vastly_ different intrinsic values over a long time span - say 10 years.
Robert Hagstrom calculated intrinsic value in his book The Warren Buffett Way, but he didn't derive any mathematical proofs. This was probably to keep it relatively simple. The equations would show what would happen to the investment under 3 different conditions:
1) bond grows faster than the company 2) bond grows slower than the company 3) bond grows at the same rate as the company
Hagstrom only had examples of when #2 was true.
After being confronted by an individual who wanted the proof (I wasn't able to produce it at that instant), I went back to my desk and scribbled it out on a scrap piece of paper at work (I couldn't concentrate after that kind of challenge).
Basically it just shows mathematically what is intuitive. That is, that if a company grows slower than a bond, buying the bond is more prudent etc.
For anybody who wants to try it, just derive the Future Value forumula (using P=present value, F=future value, I=interest rate, n=time in years). This formula applies both for the bond and the company. This is supposedly Buffett's first method of finding the future worth of a company.
Then equate both future values F(bond) = F(company). This is equivallent to 'discounting'.
When you get to the bottom of the solution you will have three solutions. I(bond) > I(company), I(bond)=I(company) and I(bond) < I(company).