Discounted cash flow

Developed by Oliver Skou Schwarz

This page will refer to the discounted cash flow (DCF) regarding projects and investments. Discounted Cash Flow (DCF) is a method used to estimate the value of an investment or a project by projecting its future cash flows and then discounting them back to their present value. The reason for using DCF is that an investment's value is equal to the sum of its expected future cash flows, discounted at an appropriate rate to account for the time value of money and the investment's level of risk.

Reference test

History

Origin

• Origin of the method
• Why was it "invented"?
• Who "invented" it?

Use throughout history

How has it been used before?

Math section

A section describing the mathematical expression in detail, so it is broken down into understandable parts. Including examples of how the calculation method works.

• Discounted Cash Flow (formula)
• Free cash flow
• Net Present Value (NPV)
• Working Average Cost of Capital (WACC)

Application

A section explaining how and when to use the method, and possible examples from real life application of it.

Investments in Projects (references to NPV as well)

A section with specific reference to projects and investments in these, and other methods that are similar or (better/worse) in certain cases.

Pros and Cons

A section describing the main pros and cons of the methods, with a critical perspective on possible assumptions of the model.

Key takeaways

A brief section with concrete advice on how it should be applied for the reader - this may need to not be the last section, so it is easier to find.

References

Possible Sources: https://www.investopedia.com/terms/d/dcf.asp https://www.investopedia.com/terms/c/cashflow.asp https://www.streetofwalls.com/finance-training-courses/investment-banking-technical-training/discounted-cash-flow-analysis/