Discounted Cash Flow Valuation

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The purpose of this paper is to give a clear understanding of discounted cash flow valuation. The paper will explain what a discounted cash flow valuation is and its importance in financial business decisions regarding investment strategies. This paper will give a detailed discussion about discounted valuations for both present and future multiple cash flows with respect to even and uneven schedules using clear step-by-step examples. Also included will be some advantages and disadvantages in using the discounted cash flow valuation method for corporate business. Finally, the paper will give a summary of important highlights discussed in the body of the paper. Discounted Cash Flow Valuation Today financial corporate managers are continually asking, “What will today’s investment look like for the future health of the company? Should financial decisions be put on hold until the markets become stronger? Is it more profitable to act now to better position the company’s market share?” These are all questions that could be clearly answered if the managers had a magical financial crystal ball. In lieu of the crystal ball, managers have a way of calculating the financial risks with some certainty to better predict positive financial investment outcomes through the discounted cash flow valuation (DCF). DCF valuation is a realistic approach, a tool used, to “determine the future and present value of investments with multiple cash flows” over a particular period of time which is incurred at the end of each period (Ross, Westerfield, & Jordan, 2011). Solutions Matrix defines DCF as a “cash flow summary adjusted so as to reflect the time value of money (The Meaning of Discounted Cash Flow, 2014).” The valuation of money paid or rec... ... middle of paper ... ...ow valuation has been correctly calculated to show the projected future cash inflow will greater than the present value of the company asset. Works Cited (2013). Retrieved January 20, 2014, from Wall Street Oasis: http://www.wallstreetoasis.com/finance-dictionary/what-is-a-discount-rate (2014, January 18). Retrieved January 19, 2014, from Business Case Analysis: http://www.business-case-analysis.com/discounted-cash-flow.html Garger, J. (2010, October 17). (L. Patsalides, Ed.) Retrieved January 20, 2014, from Bright Hub: http://www.brighthub.com/money/personal-finance/articles/18345.aspx Macabacus. (2014). Retrieved January 20, 2014, from http://macabacus.com/valuation/dcf/overview Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2011). Essentials of Coporate Finance (7th ed.). New York, New York, US: McGraw-Hill/Irwin. Retrieved January 19, 2014

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