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In finance, the discounted cash flow (or DCF) approach describes a method of valuing a project, company, or asset using the concepts of the time value of money. All future cash flows are estimated and discounted to give their present values. The discount rate used is generally the appropriate cost of capital and may incorporate judgments of the uncertainty (riskiness) of the future cash flows. Discounted cash flow analysis is widely used in investment finance, real estate development, and corporate financial management. Very similar is the net present value. The discounted cash flow formula is derived from the future value formula for calculating the time value of money and compounding returns.
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