💰 Financial
DCF Calculator
Estimate the intrinsic value of an investment using the Discounted Cash Flow (DCF) model. Input expected future cash flows and your discount rate to determine the present value.
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Formula
DCF = Σ [CF_t / (1 + r)^t] + [TV / (1 + r)^n]CF_t- Cash flow in year t
r- Discount rate (Cost of Capital)
TV- Terminal Value = CF_(n) × (1 + g) / (r - g)
g- Terminal growth rate
n- Final projection year
Example
Business Valuation
3 years of cash flows: $100, $110, $120. Discount rate: 10%. Terminal growth rate: 2%.
- Year 1 PV = 100 / (1.1)^1 = 90.91
- Year 2 PV = 110 / (1.1)^2 = 90.91
- Year 3 PV = 120 / (1.1)^3 = 90.16
- Terminal Value = [120 × (1 + 0.02)] / (0.10 - 0.02) = 1,530
- PV of Terminal Value = 1530 / (1.1)^3 = 1,149.51
- Total DCF = 90.91 + 90.91 + 90.16 + 1,149.51 = 1,421.49
Frequently Asked Questions
The Gordon Growth Model (used for Terminal Value) requires r > g. If growth is equal to or greater than the discount rate, the mathematical formula approaches infinity and the model breaks.
Terminal Value represents the present value of all future cash flows beyond the initial projection period, assuming constant perpetual growth.