Respuesta :

Discounted cash flow (DCF) is used to determine the value of an investment based on its future cash flows.

The present value of expected future cash flows is obtained using the discount rate to calculate the DCF. If the DCF is higher than the current investment cost, the opportunity can yield a positive return.

DCF valuation is extremely sensitive to assumptions about the perpetual growth rate and the discount rate. Any small adjustments here and there, and  DCF valuations will fluctuate wildly, and  fair value results will be inaccurate. It only works best  when there is a high degree of confidence in future cash flows.

If the DCF is higher than the current cost, the investment is profitable. The higher the DCF, the greater the return on investment. If the DCF is less than the current cost, the investor should keep cash instead. The most common variations of the DCF model are the discounted dividend  model (DDM) and the free cash flow model (FCF), so there are two. private operations can be obtained as close to  the  intrinsic  market value as possible.

By valuing a business based on the present value of its future cash flows, valuation professionals can achieve fair market value.

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