Discounted Cash Flow
Discounted cash flow (DCF) is a quantitative method of evaluating financial projects that can be applied for valuing business as a whole and the individual business components of a company. Through this concept you will gain a basic understanding of the method, its advantages, disadvantages and implementation steps of the approach.
Discounted Cash Flow Definition
Discounted cash flow (DCF) method is a quantitative method of evaluating financial projects by establishing today’s value of future cash flows (Kruschwitz and Löffler, 2006). This is achieved by applying a discount factor (usually expressed as a percentage) to the projected cash flows thus recognising that cash being used has an implied cost or benefit. This can be in terms of cost of raising finance, interest earned or not, or the effects of inflation eroding capital value.
Discounted Cash Flow Description *
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Discounted Cash Flow References (4 of up to 20) *
- Ashford, R.W., Berry, R.H., and Dyson, R.G. (1988) Operational Research and Financial Management. European Journal of Operational Research, Vol. 36(2), pp. 143-152.
- Bierman Jr., H. (1971) Discounted Cash Flows, Price Level Adjustments and Expectations. Accounting Review, Vol. 46(4), pp. 693-699.
- Chopra, S. and Meindl, P. (2007) Supply Chain Management. Strategy, Planning, and Operation. (3rd Edi.) Pearson Prentice Hall, Upper Saddle River, NJ.
- Cornell, B. (2001) Is the Response of Analysts to Information Consistent with Fundamental Valuation? The Case of Intel. Financial Management, Vol. 30(1), pp. 113-136.
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