Discounted Cash Flow
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In Principles of Corporate Finance Discounted Cash Flow is defined as future Cash Flows multiplied by Discount Factors to obtain Present Value ]. Cash flows are discounted for two reasons:
1) A dollar today is worth more than a dollar tomorrow 2) A safe dollar is worth more than a risky one.
A valuation method used to estimate the attractiveness of an investment opportunity. Discounted cash flow (DCF) analysis uses future free cash flow projections and discounts them (most often using the weighted average cost of capital) to arrive at a present value, which is used to evaluate the potential for investment. If the value arrived at through DCF analysis is higher than the current cost of the investment, the opportunity may be a good one.
