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.
How do I get equity value from enterprise value?
Equity value = enterprise value minus net debt. Then divide by shares outstanding to get fair value per share.
Can I rely on a single DCF?
No. Cross-check it against comparable market multiples (EV/EBITDA, P/E) and precedent transactions. A DCF is an analysis tool, not a definitive truth.
What terminal growth rate is reasonable?
The terminal growth rate should not exceed long-run nominal GDP growth, typically 2-3% for developed economies. Higher rates imply the company outgrows the overall economy in perpetuity, which is not feasible.
Provided by AllCalculators.io
Free online calculators for everyday. No registration required.
Estimates only. Not professional business advice.
Business Information Disclaimer: Estimates only. Not professional business advice.
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.