Discounting Cash Flows

Discounting the Stream

Each projected cash flow is discounted to today.

highlighted = computed this step

Discount each year

Discount each projected free cash flow at 10%. The present values are $90.91, $82.64, and $75.13.

PVt=FCFt(1+r)t\text{PV}_t=\frac{\text{FCF}_t}{(1+r)^t}
Explicit cash-flow PVsThe explicit projected free cash flows are discounted.Explicit cash flowsYearCash flowDiscount factorPV1$100.0010/11$90.912$100.00100/121$82.643$100.001000/1331$75.13Terminal value$0.001000/1331$0.00Total = DCF value$248.69

Explicit-period value

The first 3 projected years sum to $248.69. The exact fraction is 33100000/1331 cents before display rounding.

∑t=13FCFt(1+r)t=33100000/1331 cents≈$248.69\sum_{t=1}^{3}\frac{\text{FCF}_t}{(1+r)^t}=33100000/1331\text{ cents}\approx \$248.69

Value under inputs

This is only a model DCF value under the projected cash flows and discount rate used here, not a market price, price target, fair-value claim, or recommendation. Real projections and discount rates are estimated with uncertainty. This is descriptive, not investment advice.

DCF output depends on inputs\text{DCF output depends on inputs}