Discounted Cash Flow Analysis - Investopedia
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 DCF analysis says that a company is worth all of the cash that it could make available to investors in the future It is described as "discounted" cash flow
Valuation: Discounted Cash Flow (DCF) Model
• 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
Discounted Cash Flow (DCF) Analysis
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 In addition, the technique was popularised by a number of
Discounted Cash Flow Valuation: The Inputs
both the riskiness and the type of cashflow being discounted – Equity versus Firm : If the cash flows being discounted are cash flows to equity, the appropriate discount rate is a cost of equity If the cash flows are cash flows to the firm, the appropriate discount rate is the cost of capital
CHAPTER 4 DISCOUNTED CASH FLOW VALUATION
DISCOUNTED CASH FLOW VALUATION Answers to Concepts Review and Critical Thinking Questions 1 Assuming positive cash flows and interest rates, the future value increases and the present value decreases 2 Assuming positive cash flows and interest rates, the present value will fall and the future value will rise 3
Discounted cash flow measures of return
discounted at the appropriate hurdle rate (cost of capital, if cash flow is cash flow to the firm, and cost of equity, if cash flow is to equity investors) ¤ Decision Rule: Accept if NPV > 0 ¨ Internal Rate of Return (IRR): The internal rate of return is the discount rate that sets the net present value equal to zero It is the percentage
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