Question:

Walk me through a DCF

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Answer:

In a DCF analysis, you value a company with the Present Value of its future Free Cash Flows plus the Present Value of its Terminal Value.

First, Project a company’s Free Cash Flow over a period of time (usually 5-10 years)
Calculate the company’s Discount Rate
Discount the cash flows back to their Present Value and sum them up
Calculate the company’s Terminal value
Discount the Terminal Value to its Present Value
Add the discounted Free Cash Flows to the discounted Terminal Value

Other

DCF

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