Discounted Cash Flow (DCF)
A technique that adjusts future cash flows to their present value by applying a discount rate, reflecting the principle ...
Formula
Present Value = Future Cash Flow ÷ (1 + r)ⁿ
Real World
When the UK government valued HS2, analysts used DCF to show that £1bn of passenger revenues expected in 2040 is worth significantly less in today's money than £1bn received now.
Exam Focus
Explain why a higher discount rate lowers NPV — rising interest rates make future cash flows worth less today, reducing project viability.
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