Cost Of Capital And Discounting Cash Flows |
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The Discounted Cash Flow (DCF) method is a widely used and most accepted business valuation method in finance and investment. It involves forecasting tfuture cash flows of a business and discounting them back to their present value using an appropriate discount rate.
The cash flows used in the model include both the expected cash flows during the forecast period and the expected cash flows beyond that period, commonly referred to as the terminal value.
The terminal value represents the estimated value of the business beyond the forecast period and is typically calculated using a perpetuity formula or a multiple of the final year's cash flow. However, the terminal value is often a significant portion of the total value in the DCF model and can be subject to significant estimation uncertainty.
The DCF model is considered suitable for valuing most types of businesses and companies as a going concern. However, it may not be appropriate for valuing companies in certain industries like |
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