# Guide to the Discounted Cash Flow DCF Formula

## What is discounted cash flow DCF explain with example?

The discounted cash flow method is based on the concept of the time value of money, which says that the money that an individual has now is worth more than the same amount in the future. For example, Rs. 1,000 will be worth more currently than 1 year later owing to interest accrual and inflation.

## How do you project cash flow for DCF?

This approach involves 6 steps:
1. Forecasting unlevered free cash flows. …
2. Calculating terminal value. …
3. Discounting the cash flows to the present at the weighted average cost of capital. …
4. Add the value of non-operating assets to the present value of unlevered free cash flows. …
5. Subtract debt and other non-equity claims.

## How do you calculate discounted cash flow in NPV?

It is calculated by taking the difference between the present value of cash inflows and present value of cash outflows over a period of time. As the name suggests, net present value is nothing but net off of the present value of cash inflows and outflows by discounting the flows at a specified rate.

## How is discount factor calculated?

For example, to calculate discount factor for a cash flow one year in the future, you could simply divide 1 by the interest rate plus 1. For an interest rate of 5%, the discount factor would be 1 divided by 1.05, or 95%.

## How do you calculate DCF equity?

Steps in the DCF Analysis

Calculate the TV. Calculate the enterprise value (EV) by discounting the projected UFCFs and TV to net present value. Calculate the equity value by subtracting net debt from EV.

## What is equity formula?

Equity Formula states that the total value of the equity of the company is equal to the sum of the total assets minus the sum of the total liabilities.