Frequently Asked Questions
What is DCF valuation?
Discounted Cash Flow values a business by projecting future free cash flows and discounting back to present value. Formula: PV = Sum of (Cash Flow / (1+r)^t) for each year. Adds terminal value at end of projection period. Common discount rates: 10-15% for stable businesses, 20-30% for high-risk.
What discount rate should I use?
Weighted Average Cost of Capital (WACC) for unlevered DCF. Cost of equity (CAPM) for levered DCF. Common ranges: blue chip 7-9%, mid-cap 9-12%, small cap 12-18%, startup 20-30%+. Higher risk = higher rate. Sensitivity test ±2% to see how much it matters.
How do I calculate terminal value?
Two methods: perpetuity growth (TV = FCF × (1+g) / (WACC - g), with g = 2-3% inflation rate) or exit multiple (TV = EBITDA × industry multiple). Terminal value usually 60-80% of total DCF - small input changes have huge output impact.
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This calculator provides estimates for informational purposes only. Business results vary by industry, market conditions, and execution. Not a substitute for professional business consulting, accounting, or legal advice. Consult qualified professionals before making business decisions.