Discounted Cash Flow Calculator
Calculate discounted cash flow with our free Discounted cash flow Calculator. Compare rates, see projections, and make informed financial decisions.
Formula
DCF = Sum of [CF_t / (1+r)^t] + Terminal Value / (1+r)^n
Where CF_t is the cash flow in year t, r is the discount rate, n is the number of projection years, and Terminal Value = CF_n x (1+g) / (r-g) using the Gordon Growth Model, where g is the perpetual growth rate.
Worked Examples
Example 1: Startup Valuation
Problem: A startup generates $100,000 in free cash flow, expected to grow at 15% for 5 years. The discount rate is 12% and terminal growth rate is 3%.
Solution: Year 1 CF: $115,000, PV: $102,679\nYear 2 CF: $132,250, PV: $105,421\nYear 3 CF: $152,088, PV: $108,227\nYear 4 CF: $174,901, PV: $111,100\nYear 5 CF: $201,136, PV: $114,041\nPV of Cash Flows: $541,468\nTerminal Value: $201,136 x 1.03 / (0.12 - 0.03) = $2,301,893\nPV of Terminal: $2,301,893 / 1.12^5 = $1,305,838\nTotal DCF: $541,468 + $1,305,838 = $1,847,306
Result: Total DCF Value: $1,847,306 | Terminal Value is 71% of total
Example 2: Real Estate Investment
Problem: A rental property produces $50,000 annual net operating income growing at 3% per year. Discount rate is 8%, projection period is 10 years, terminal growth rate is 2%.
Solution: Cash flows are projected for 10 years with 3% annual growth.\nYear 1: $51,500, PV: $47,685\nYear 5: $57,964, PV: $39,449\nYear 10: $67,196, PV: $31,120\nSum of PV Cash Flows: $373,284\nTerminal Value: $67,196 x 1.02 / (0.08 - 0.02) = $1,142,336\nPV of Terminal: $1,142,336 / 1.08^10 = $529,099\nTotal DCF: $373,284 + $529,099 = $902,383
Result: Total DCF Value: $902,383 | Terminal Value is 59% of total
Frequently Asked Questions
What are common mistakes in discounted cash flow analysis?
Several pitfalls can significantly distort DCF results. First, overly optimistic growth projections are the most common error, leading to inflated valuations. Always use conservative or base-case assumptions. Second, using an inappropriately low discount rate understates risk and inflates present values. Third, setting the terminal growth rate too high has an outsized impact since terminal value dominates the model. Keep it at or below long-term inflation plus real GDP growth. Fourth, ignoring capital expenditures and working capital changes overstates free cash flow. Fifth, failing to perform sensitivity analysis on key assumptions leaves you blind to how uncertain inputs affect the outcome. Sixth, double-counting growth by using high near-term growth AND a high terminal growth rate.
How do you calculate free cash flow for DCF analysis?
Free Cash Flow (FCF) is the cash a business generates after accounting for capital expenditures needed to maintain or expand its asset base. The formula is: FCF = Operating Income x (1 - Tax Rate) + Depreciation and Amortization - Capital Expenditures - Changes in Working Capital. Operating income (EBIT) represents earnings before interest and taxes. You multiply by (1 - tax rate) to get after-tax operating income, also called NOPAT. Depreciation is added back because it is a non-cash expense. Capital expenditures are subtracted because they represent actual cash spent on assets. Working capital changes capture cash tied up in inventory, receivables, and payables. For established companies, FCF margins typically range from 5-20% of revenue depending on the industry.
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What formula does Discounted Cash Flow Calculator use?
The formula used is described in the Formula section on this page. It is based on widely accepted standards in the relevant field. If you need a specific reference or citation, the References section provides links to authoritative sources.
Can I use Discounted Cash Flow Calculator on a mobile device?
Yes. All calculators on NovaCalculator are fully responsive and work on smartphones, tablets, and desktops. The layout adapts automatically to your screen size.
Can I use the results for professional or academic purposes?
You may use the results for reference and educational purposes. For professional reports, academic papers, or critical decisions, we recommend verifying outputs against peer-reviewed sources or consulting a qualified expert in the relevant field.