I need to figure out business valuation for my company. What is the discounted cash flow method? Should I use this as my formula? How do I use it? Thank you.
submitted by Sharon in Augusta, GA
DISCOUNTED CASH FLOW METHOD OF BUSINESS VALUATION.
SUPPOSE YOU HAVE GOT AN ASSET WHOSE EARNING LIFE IS 5 YEARS AND EXPECTED EARNING (CASH FLOW ) ARE AS UNDER
If cash flow is constant say 50000 per year for 5 years total amount 250000, then discounted cash flow will be 250000 x 3.79=
189500. So discounted business value is 189500.
Here cash flows have been discounted @ 10% - where 10% is normal interest rate.
J.P. GUPTA
Cost & Management Accountant
NAGPUR, INdia
submitted by Jai Prakash Gupta in NAGPUR, INDIA
@ September 14, 2009 - 08:01 AM
SUPPOSE YOU HAVE GOT AN ASSET WHOSE EARNING LIFE IS 5 YEARS AND EXPECTED EARNING (CASH FLOW ) ARE AS UNDER
YEAR CASH FLOW DISC FACTOR DISC. CASH FLOW
(10%)
1 50000 0.909 45450
2 50000 o.826 41300
3 40000 0.7513 30052
4 30000 0.683 20490
5 25000 0.6209 15523
TOTAL 195000 3.79 152815
If cash flow is constant say 50000 per year for 5 years total amount 250000, then discounted cash flow will be 250000 x 3.79=
189500. So discounted business value is 189500.
Here cash flows have been discounted @ 10% - where 10% is normal interest rate.
J.P. GUPTA
Cost & Management Accountant
NAGPUR, INdia