Category Archives: Correct Discount Rate
One of the most widely-accepted and utilized methods of valuing a business in today’s world of modern finance is discounted cash flow (DCF) analysis. Obviously, in order to calculate valuation, practitioners must rely on mathematical formulas. However, the challenge with utilizing mathematical formulas to determine the net present value (NPV) of a future stream of income is in determining the proper inputs. Consequently, the accuracy of our result is subject to the principle “garbage in garbage out.” In other words, our calculations will only be good as the data inputs we use when running our formulas.