Discounted cash flow: Difference between revisions

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 The discounted cash flow value of a business or investment is generally obtained by summing the present values of all projected future cash flows, including any terminal value.
+For a complete discounted cash flow valuation, the formula is:
+<math>
+DCF=\sum_{t=1}^{n}\frac{FCF_t}{(1+r)^t}+\frac{TV}{(1+r)^n}
+</math>
+where:
+'''DCF''' = discounted cash flow value;
+'''FCF<sub>t</sub>''' = free cash flow in period ''t'';
+'''r''' = discount rate (typically the weighted average cost of capital);
+'''t''' = time period;
+'''n''' = final forecast period;
+'''TV''' = terminal value.
+The second formula is the one typically used in business valuation, while the first is the basic present value formula from which DCF analysis is derived.
 == Components ==