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Discounted Cash Flow Calculator

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Enter up to five years of projected cash flows and a discount rate to find their present value.

Discounted Cash Flow Calculator

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Present value (DCF)
$3,066.10
YearCash flowPresent value

The formula

Present value of year n's cash flow = Cash flow / (1 + discount rate)^n DCF = sum of all years' present values
Example

Cash flows of $1,000, $1,200, $1,400 at an 8% discount rate: PV = 1000/1.08 + 1200/1.08² + 1400/1.08³ = $3,066.10.

Step-by-step guide

  1. Enter your discount rate - often a company's cost of capital or a required rate of return.
  2. Enter projected cash flows for each year (leave later years blank if you have fewer than 5 years of projections).
  3. Read the present value, along with each year's individual contribution in the table.

Why a dollar today is worth more than a dollar next year

Discounting reflects a basic financial principle: money available now can be invested and grow, while money received later can't start growing until it arrives - so a future dollar is worth less than a present one, and by more the further out it is or the higher the discount rate. The discount rate itself represents the return you could reasonably expect elsewhere (an opportunity cost) or the minimum return required to justify the risk of waiting - a higher rate signals more risk or a higher bar for the investment, and produces a lower present value for the same future cash flows.

Common mistakes

Using a discount rate that doesn't reflect the actual risk of the cash flows - a highly speculative investment generally warrants a higher rate than a stable, predictable one.
Forgetting to include an initial investment or upfront cost as a separate (negative) figure when comparing DCF against the cost of an investment - this calculator totals the cash flows only, so subtract any upfront cost from the result yourself.

Frequently asked questions

What discount rate should I use?

It depends on context - businesses often use their weighted average cost of capital (WACC), while individuals evaluating a personal investment might use their required rate of return or the return available from a comparable alternative.

How is DCF used to value an entire business?

Analysts project a company's future free cash flows over several years, discount them to present value using this same method, and often add a "terminal value" representing all cash flows beyond the projection period - the sum is an estimate of the business's intrinsic value.

What's the difference between DCF and NPV?

They're closely related - DCF is the technique of discounting future cash flows to the present, while Net Present Value (NPV) specifically subtracts an initial investment cost from that discounted total to show the net gain or loss.

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