Discounted Cash Flow (DCF) Calculator

Why DCF Matters

Discounted Cash Flow (DCF) is a valuation method used to estimate the value of an investment based on its expected future cash flows. It’s widely used in finance, equity research, and business valuation to determine intrinsic value.

How to Use This Calculator

Enter your projected annual cash flows (e.g., from a business, rental property, or stock), your required rate of return (discount rate), and optionally a terminal value for long-term growth. The tool discounts each cash flow to its present value and sums them to calculate the Net Present Value (NPV).

The DCF Formula

Where:

• CFₜ = Cash flow in year t
• r = Discount rate (required return)
• t = Time period (year)
• TV = Terminal value (optional)
• n = Final year of projection

This formula accounts for the time value of money — future cash is worth less than cash today.

Real-World Applications

• Stock Valuation: Estimate fair value of a company’s shares
• Real Estate: Value rental properties based on net income
• Startup Investing: Assess venture capital opportunities
• M&A: Evaluate acquisition targets

Key Assumptions

• Accurate Cash Flow Projections: The output depends heavily on input quality
• Appropriate Discount Rate: Reflects risk (e.g., 10% for moderate risk)
• Terminal Value: Often calculated using perpetuity growth model

Example

A property generates $20,000/year for 5 years, with a terminal value of $200,000. At a 12% discount rate, the DCF value is $182,345. If the purchase price is lower, it may be a good investment.

Tips for Better Accuracy

• Use conservative cash flow estimates
• Adjust discount rate for risk level (higher risk = higher rate)
• Consider sensitivity analysis with different scenarios
• For terminal value, use sustainable growth rates (typically 2–3%)
• Compare DCF value to current market price