Discounted Cash Flow Valuation Calculator
Calculate the present value of any investment using the same method financial professionals use worldwide.
How the Discounted Cash Flow Valuation Calculator works
Enter your projected cash flows, growth rate, discount rate, and time period. The calculator shows you the present value by discounting future cash flows to today’s dollars.
DCF is the foundation of investment analysis. It shows you what any cash-generating asset is truly worth by focusing on cash generation, not market hype.
How it works
Tutorial
Discounted cash flow valuation is the most reliable method to determine what any cash-generating asset is truly worth. Unlike market-based approaches that simply compare to similar assets, DCF makes you think fundamentally about cash generation, growth, risk, and timing. Warren Buffett uses DCF to value every investment because it reveals true value independent of market sentiment.
The core insight of DCF is simple: a dollar today is worth more than a dollar tomorrow because you could invest today’s dollar and earn returns. Therefore, future cash flows must be discounted back to present value using a discount rate that reflects risk and opportunity cost. Higher risk requires higher discount rates, which reduce present value. Understanding DCF prevents overpaying for assets and helps identify genuinely undervalued opportunities.
The Basic Formula
| Component | Formula | Purpose |
|---|---|---|
| Present Value | PV = CF / (1 + r)ⁿ | Discount future cash to today’s value |
| NPV | NPV = Σ [CFₜ / (1 + r)ᵗ] – Initial Investment | Net value after subtracting cost |
| Terminal Value | TV = CFₙ × (1 + g) / (r – g) | Value beyond forecast period |
| Enterprise Value | EV = Σ PV(CFs) + PV(Terminal Value) | Total asset value |
Step-by-Step Calculation
Example:Rental property generating $24,000/year net cash flow, 3% annual growth, 8% discount rate, 10-year holding period, $40,000 initial investment
Step 1: Project Cash Flows
| Year | Cash Flow Calculation | Annual Cash Flow |
|---|---|---|
| 1 | $24,000 × 1.03⁰ | $24,000 |
| 2 | $24,000 × 1.03¹ | $24,720 |
| 3 | $24,720 × 1.03 | $25,462 |
| 4 | $25,462 × 1.03 | $26,226 |
| 5 | $26,226 × 1.03 | $27,013 |
| 6-10 | Continue 3% growth | $27,823 to $31,276 |
Step 2: Calculate Present Values
| Year | Cash Flow | Discount Factor (8%) | Present Value |
|---|---|---|---|
| 1 | $24,000 | 1/(1.08)¹ = 0.9259 | $22,222 |
| 2 | $24,720 | 1/(1.08)² = 0.8573 | $21,193 |
| 3 | $25,462 | 1/(1.08)³ = 0.7938 | $20,212 |
| 4 | $26,226 | 1/(1.08)⁴ = 0.7350 | $19,276 |
| 5 | $27,013 | 1/(1.08)⁵ = 0.6806 | $18,386 |
| 6 | $27,823 | 1/(1.08)⁶ = 0.6302 | $17,535 |
| 7 | $28,658 | 1/(1.08)⁷ = 0.5835 | $16,721 |
| 8 | $29,518 | 1/(1.08)⁸ = 0.5403 | $15,945 |
| 9 | $30,403 | 1/(1.08)⁹ = 0.5002 | $15,207 |
| 10 | $31,315 | 1/(1.08)¹⁰ = 0.4632 | $14,505 |
| Total PV (Years 1-10) | Sum of all PVs | $181,202 | |
Step 3: Add Terminal Value and Calculate NPV
| Component | Calculation | Value |
|---|---|---|
| Year 11 Cash Flow | $31,315 × 1.03 | $32,254 |
| Terminal Value (Perpetuity) | $32,254 / (0.08 – 0.03) | $645,080 |
| PV of Terminal Value | $645,080 / (1.08)¹⁰ | $298,811 |
| Total Present Value | $181,202 + $298,811 | $480,013 |
| Less: Initial Investment | Upfront cost | -$40,000 |
| Net Present Value | Total PV – Investment | $440,013 |
What This Means
This rental property investment has a positive NPV of $440,013, meaning it’s worth $480,013 in present value terms while only costing $40,000 to acquire. This would be an exceptional investment-in reality, market prices would likely be much higher for such a property. The example illustrates DCF mechanics: even though year 1 cash flow is only $24,000, the combination of growth, time, and terminal value creates substantial wealth.
Notice that 62% of total value ($299K of $480K) comes from the terminal value-the assumed cash flows beyond year 10. This is typical in DCF models and explains why small changes in terminal growth or discount rates cause huge valuation swings. If you change the discount rate from 8% to 10%, NPV drops significantly. DCF’s power is also its limitation: unrealistic inputs create unrealistic valuations. Always test your assumptions with different scenarios.
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