Discounted Cash Flow Calculator

Discounted coins drift Calculator calculates the discounted present cost of destiny cash waft for a enterprise, inventory investment, residence buy, and so forth. it's miles extra suitable whilst future situations are variable and there is gradual terminal growth.

What Does Discounted coins drift way?

"DCF (Discounted coins go with the flow) is a technique employed to access an investment through the evaluation of its anticipated destiny coins go with the flow"

 

The discounted coins float is used to analyze the desirability of an funding possibility through considering projected future earnings. For evaluating the funding possibilities, variety from 10% to 20% reflecting the investor’s anticipated fee of go back.

DCF formulation:

The discounted coins waft system equals the sum of all discounted cash glide from the strength of different time intervals.

\(DCF = \frac{CF_1}{(1+r)^1} + \frac{CF_2}{(1+r)^2} + \frac{CF_3}{(1+r)^3} + \ldots + \frac{CF_n}{(1+r)^n}\)

Where:

• \(CF_1, CF_2, CF_3, \ldots, CF_n\) = Expected cash flows at different time periods e.g: year 1, year 2, …
• (r) = Discount rate represents the rate of return required by investors or the cost of capital.

Practical Example:

Imagine an investment opportunity in a manufacturing company that expects the following annual cash flows:

• Year 1: $100,000
• Year 2: $120,000
• Year 3: $150,000

Solution:

Step 1: Formula for Discounted Cash Flow (DCF):

The formula to calculate the discounted cash flow is:

\[ DCF = \frac{CF_1}{(1+r)^1} + \frac{CF_2}{(1+r)^2} + \frac{CF_3}{(1+r)^3} + \ldots + \frac{CF_n}{(1+r)^n} \]

Where:

• \(CF_n\): Cash flow in year \(n\)
• \(r\): Discount rate (15% or 0.15 in this case)

Step 2: Substitute the Values:

\[ PV = \frac{100,000}{(1+0.15)^1} + \frac{120,000}{(1+0.15)^2} + \frac{150,000}{(1+0.15)^3} \]

Simplifying:

\[ PV = \frac{100,000}{1.15} + \frac{120,000}{(1.15)^2} + \frac{150,000}{(1.15)^3} \]

Step 3: Calculate the Present Value for Each Year:

• Year 1: \(PV_1 = \frac{100,000}{1.15} \approx 86,956.52\)
• Year 2: \(PV_2 = \frac{120,000}{(1.15)^2} \approx 89,820.69\)
• Year 3: \(PV_3 = \frac{150,000}{(1.15)^3} \approx 98,267.72\)

Step 4: Add the Present Values:

\[ PV \approx 86,956.52 + 89,820.69 + 98,267.72 \]

\[ PV \approx 275,045.93 \]

Final Answer:

The present value of the investment opportunity, considering a 15% discount rate, is approximately $275,045.93.

This calculation demonstrates how the DCF method can help evaluate the attractiveness of an investment opportunity by accounting for the time value of money.

Steps to apply The Calculator:

• select the DCF technique
• placed the values thus
• Press on calculate

Outputs:

• Increase fee
• Terminal cost
• General Intrinsic fee
• Value Of The firm
• Price Of The equity same
• Truthful cost per proportion
• Percent of puffed up corporation