Calculating Discounted Free Cash Flow May 26, 2010 4:15 AM ET HD, LMT 4 Comments MagicDiligence 60.66K Follower s ...

CALCULATING DCF The elements of DCF therefore are 1) the period of time to be used for evaluation, say a business life of 10 years, 2) the flows of cash that will occur every year in that business ...

A single payment is discounted using the formula: PV = Payment / (1 + Discount)^Periods As an example, the first year's return of $30,000 can be discounted by a 3 percent rate of inflation. The ...

Add the discounted cash flows from Step 3 and the terminal value from Step 4 to get the total present value of the investment or business. Importance of Discounted Cash Flow ...

Discounted cash flow, or DCF, is a tool for analyzing financial investments based on their likely future cash flow. When an investment will cost more money to buy, generate less money in return ...

Let's use the above formula to calculate the value of this contract for various discount rates. If you demand a 5% return on your investment, the value of this contract is $20,000.

For three years, you would take the cubed root and so on. Subtract one from your result, and multiply by 100. This will give you the discount rate of the discounted cash flow in percentage terms.