| A method of evaluating an investment by estimating future cash flows and taking into consideration the time value of money. It is a formula closely related to Net Present Value which springs from the idea that 1 received in ten years' time is not worth as much as 1 received now because the 1 received now could be invested for those ten years and compound into a higher value. Discounted cash flow applies a discount rate to future cash flows to establish their present worth. Added to the company's terminal value (i.e. what you'd get if you sold its assets), this gives you a total value for the whole asset.
|
