![]() The discounted cash flow method is still one of the best tools for investors to determine an investment’s total value. If you have bad estimates, the result will be flawed. It’s important to note that investors will use estimates in a DCF valuation, because they’re predicting the future, so the result is also an estimate. A DCF analysis also helps investors know if the investment is a fair value or the true value of a company. In the investment banking world, companies can use the discounted cash flow formula to know if the value of a business is a good long-term investment, as well. Real estate investors use discounted cash flow when trying to determine a low-risk investment’s value in the future when they’d want to cash out.
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