<--Back to Wiki Home
Discounted Cash Flow Analysis:
"Discounted cash flow analysis" is a way to find out how much an investment, like a rental property or a business, is worth today by looking at the money it is expected to make in the future. Because money today is worth more than the same amount of money in the future, we "discount" the future money to find out its value in today's dollars.
For example, let's say you're considering buying a small store that you expect to make $10,000 a year for the next five years. To find out how much this store is worth today using discounted cash flow analysis, you would calculate the value of each year's $10,000 in today's dollars and then add them all up.
"Wit & Whimsy with the Dumb Ox: Unlocking Knowledge with Rhyme:"
In the land of cash and property, where investments come to play,
"Discounted cash flow analysis" finds the value we weigh.
It looks at future income streams, and brings them to the now,
Discounting future dollars, to find their worth somehow.
Imagine now, a small store, with earnings to be made,
Ten thousand bucks a year it earns, and for five years, it's displayed.
To find its worth, we must discount, the cash that's yet to flow,
Add up the values, one by one, and the worth we'll come to know.
"Discounted cash flow analysis" helps us see the light,
By telling us the value of, investments in our sight.
In the land of cash and property, where dollars ebb and flow,
"Discounted cash flow analysis" guides us where to go.