Discounted Cash Flow Valuation Calculator
DCF analysis values any cash-generating asset. Master discounted cash flow calculation for investment analysis.
How the Discounted Cash Flow Valuation Calculator works
Build DCF models for businesses, projects, or properties. Project cash flows, select appropriate discount rates, and calculate present values with professional techniques.
DCF is fundamental to finance. This calculator teaches the methodology while providing accurate valuations for investment decisions.
How it works
Tutorial
Discounted cash flow valuation is the most rigorous method to determine what any cash-generating asset is truly worth. Unlike market-based approaches that simply compare to similar assets, DCF forces you to think fundamentally about cash generation, growth, risk, and timing. Warren Buffett uses DCF to value every investment because it reveals intrinsic value independent of market sentiment. Whether valuing a business, rental property, or project, DCF calculation separates serious investors from amateurs.
The core insight of DCF is simple but profound: a dollar today is worth more than a dollar tomorrow because you could invest today’s dollar and earn returns. Therefore, future cash flows must be “discounted” back to present value using a discount rate that reflects risk and opportunity cost. Higher risk requires higher discount rates, which reduce present value. Understanding DCF mechanics prevents overpaying for assets and helps identify genuinely undervalued opportunities that markets misprice.
The Basic Formula
| Component | Formula | Purpose |
|---|---|---|
| Present Value | PV = CF / (1 + r)ⁿ | Discount future cash to today’s value |
| NPV | NPV = Σ [CFₜ / (1 + r)ᵗ] – Initial Investment | Net value after subtracting cost |
| Terminal Value | TV = CFₙ × (1 + g) / (r – g) | Perpetual value beyond forecast period |
| Enterprise Value | EV = Σ PV(CFs) + PV(Terminal Value) | Total asset value |
Step-by-Step Calculation
Example: Rental property generating $24,000/year net cash flow, 3% annual growth, 8% discount rate (risk-adjusted required return), 10-year holding period, $40,000 initial investment
Step 1: Project Cash Flows
| Year | Cash Flow Calculation | Annual Cash Flow |
|---|---|---|
| 1 | $24,000 × 1.03⁰ | $24,000 |
| 2 | $24,000 × 1.03¹ | $24,720 |
| 3 | $24,720 × 1.03 | $25,462 |
| 4 | $25,462 × 1.03 | $26,225 |
| 5 | $26,225 × 1.03 | $27,012 |
| 6-10 | Continue 3% growth | $27,822 to $31,274 |
Step 2: Calculate Present Values
| Year | Cash Flow | Discount Factor (8%) | Present Value |
|---|---|---|---|
| 1 | $24,000 | 1/(1.08)¹ = 0.9259 | $22,222 |
| 2 | $24,720 | 1/(1.08)² = 0.8573 | $21,193 |
| 3 | $25,462 | 1/(1.08)³ = 0.7938 | $20,213 |
| 4 | $26,225 | 1/(1.08)⁴ = 0.7350 | $19,278 |
| 5 | $27,012 | 1/(1.08)⁵ = 0.6806 | $18,386 |
| 6-10 | $27,822-31,274 | 0.6302 to 0.4632 | $17,535 to $14,486 |
| Total PV (Years 1-10) | Sum of all PVs | $186,427 | |
Step 3: Add Terminal Value and Calculate NPV
| Component | Calculation | Value |
|---|---|---|
| Year 11 Cash Flow | $31,274 × 1.03 | $32,212 |
| Terminal Value (Perpetuity) | $32,212 / (0.08 – 0.03) | $644,240 |
| PV of Terminal Value | $644,240 / (1.08)¹⁰ | $298,422 |
| Total Present Value | $186,427 + $298,422 | $484,849 |
| Less: Initial Investment | Upfront cost | -$40,000 |
| Net Present Value | Total PV – Investment | $444,849 |
What This Means
This rental property investment has a massive positive NPV of $444,849, meaning it’s worth $484,849 in present value terms while only costing $40,000 to acquire. This would be an exceptional investment—in reality, market prices would likely be higher for such a property. The example illustrates DCF mechanics: even though year 1 cash flow is only $24,000, the combination of growth, time, and terminal value creates enormous wealth.
Notice that 62% of total value ($298K of $485K) comes from the terminal value—the assumed perpetual cash flows beyond year 10. This is typical in DCF models and explains why small changes in terminal growth assumptions or discount rates cause huge valuation swings. If you change the discount rate from 8% to 10%, NPV drops to $311,000—a $134K difference from a 2% rate change. DCF’s power is also its limitation: garbage inputs create garbage valuations. Always stress-test assumptions with sensitivity analysis.
Meet the fastest voice-to-text for professionals
WriteVoice turns your voice into clean, punctuated text that works in any app. Create and ship faster without typing. Your first step was Discounted Cash Flow Valuation Calculator; your next step is instant dictation with WriteVoice.
A blazing-fast voice dictation
Press a hotkey and talk. WriteVoice inserts accurate, formatted text into any app, no context switching
Works in any app
Press one hotkey and speak; your words appear as clean, punctuated text in Slack, Gmail, Docs, Jira, Notion, and VS Code—no context switching, just speed with writevoice
Accurate, multilingual, and smart
97%+ recognition, smart punctuation, and 99+ languages so your ideas land first try, built for teams and pros.
Private by default
Zero retention, audio and text are discarded instantly, with on-device controls so you can dictate sensitive work confidently.