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Strategies & Market Trends : Value Investing
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To: E_K_S who wrote (78120)9/17/2025 12:40:04 PM
From: bruwin  Read Replies (1) of 78470
 
The DCF formula as presented in that first link looks very "convoluted" to me.

The DCF formula is, in actual fact, the following, and is quite simple :-

Future Value = Present Value(1+r/100)^n,

..... where "r" is the Discount Rate Percentage and "n" the number of years into the future which one wants to know the "Future Value".

IMO, the "problem" and the "unknown" with DCF is with regard to choosing the percentage "r".
Because the more that number is irrelevant, the greater will be the irrelevancy of the "Future Value" the further into the future one looks based on the number of years, "n".

An example :- one chooses "r" = 20% whereas it should, or could , be 18%
Present Value = 1000
Years = 15
Therefore :- 1000(1+20/100)^15 = ~15407

For "r" = 18% :- 1000(1+18/100)^15 = ~11973, a reduction of ~22% for only a 2% difference in "r".
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