Discounted Cash Flow
Discounted Cash Flow (DCF) is a method used to value a company or investment by estimating its future cash flows and adjusting them for time value. It helps assess if an investment is profitable based on the present value of expected future cash flows. The formula for DCF is: DCF = Cash Flow Year 1 / (1 + r1)^1 + Cash Flow Year 2 / (1 + r2)^2 + ... + Cash Flow Year N / (1 + r)^N. Where: - Cash Flow = Expected future cash flow. - r = Discount rate for each year. - N = Number of years. DCF calculates the value today of expected future cash flows, adjusting for risk and time.
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