What is Discounted Cash Flow?

Discounted Cash Flow (DCF) is a technique for making financial models based on assumptions about the prospect of income and costs for a property or business. Making these assumptions relates to the quantity, quality, variability, time and duration of cash inflows and outflows discounted to present value.

The DCF concept is based on the idea that if you invest a number of funds, then the funds will grow by a percentage or maybe several times after a certain amount of time. Called ‘discounted cash flow’, because the way to calculate it is to estimate the flow of funds in the future to then cut and produce the value of these funds at present.

Various Discount Rates

  1. Multiple Cash Flows – Multiple Cash Flow –
    Double cash flows are cash flows that consist of more than one period. Cash flow is useful for knowing the value of investments in the future.
  2. Multiple Cash Flow – Present Value (Multiple Cash Flow – Present Value)
    This cash flow is useful to know the value of cash that we have a few years ago with the value of the investment we have today.
  3. Decision on the basis of Discounted Cash Flow
    If the present value of the investment is negative (meaning that the present value of the expenditure of funds is greater than the present value of the funds received) then you will not take the investment, and vice versa (if positive)
  4. Annuities and Perpetuities
    annuity – limited circuit of the payment in the same value that occurs at fixed time intervals
    Perpetuities – The circuit is not limited to the payment of the same value

 

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