Future income streams
Time value of money
Today's worth
Invest or not?
Enter your cash flows and click "Calculate DCF" to see the breakdown.
DCF is a valuation method that estimates the value of an investment based on its expected future cash flows, discounted back to present value.
For long-term investments, terminal value often represents 60-80% of total value.
// 5-year projection + Terminal Value
PV of Years 1-5: $150,000
Terminal Value: $500,000
PV of Terminal: $310,000
// Total DCF: $460,000
// Terminal = 67% of value!A too-low discount rate inflates values; too-high undervalues investments.
// Same cash flows, different rates:
// At 5%: NPV = $200,000 (too optimistic)
// At 10%: NPV = $150,000 (reasonable)
// At 15%: NPV = $100,000 (too pessimistic)
// Match rate to actual risk!Use WACC (Weighted Average Cost of Capital) for company valuations, or your required rate of return for personal investments. Higher risk = higher discount rate.
DCF is highly sensitive to assumptions about future cash flows and discount rates. Small changes can significantly impact valuation. Always run sensitivity analysis.
DCF struggles with early-stage startups (unpredictable cash flows), cyclical businesses, and companies undergoing major transitions. Use comparable analysis or other methods instead.