DCF Calculator

How to use this calculator

DCF requires two types of input: the discount rate and the projected cash flows.

Initial Investment is what you put in at Year 0. Enter it as a positive number. The calculator treats it as a negative cash flow (an outflow) at time zero. For a business acquisition, this is the purchase price. For a project, it’s the upfront capital required.

Discount Rate (%) is your required annual return — the rate you use to discount future cash flows back to today. This is the most important input and the hardest to set correctly. More on this below.

Number of Periods controls how many cash flow rows appear. Select 1 to 10. Each row represents one year’s projected cash inflow.

Cash Flow inputs (CF Year 1 through CF Year N) are your projected annual cash flows from the investment. Enter the amount you expect to receive each year. These should be free cash flows available to you as the investor, after operating costs, taxes, and capex. For a bond, these are coupon payments. For a rental property, this is rent minus operating expenses and debt service. For a business, it’s free cash flow to equity or firm, depending on what you’re valuing.

Terminal Value (optional toggle) is a lump sum added to the last year’s cash flow. In business valuation, terminal value represents the continuing value beyond the explicit forecast period. A common estimate: Final Year FCF × (1 + g) / (r − g), where g is the long-term growth rate and r is the discount rate. Enter the calculated terminal value directly into this field.

The result shows NPV, the full DCF table with discount factors and present values per year, and a bar chart comparing nominal to discounted cash flows.

What DCF actually measures

DCF is an intrinsic value calculation. It asks: given the cash flows this asset is expected to generate, and given what I require to earn on my capital, what is this asset worth to me today?

The “discounting” part accounts for the time value of money. A dollar arriving in year 5 is worth less than a dollar arriving today for two reasons: inflation erodes purchasing power, and money available now can be reinvested at your required rate.

Discounting brings all future cash flows to a common reference point: today. Once every cash flow is expressed in today’s dollars, you can simply add them up and compare to what you’re paying.

NPV is not a prediction of profit. It's the premium (or discount) you're getting relative to your required rate of return. An NPV of $0 doesn't mean the investment is bad. It means you'll earn exactly your required rate. An NPV of $100,000 means you're getting $100,000 of value above what your required rate would give you elsewhere.

The formulas

The discount factor for each year is 1 / (1 + r)^t. At 10% discount rate, year 1 factor is 0.909, year 5 is 0.621, year 10 is 0.386. By year 10, a dollar of cash flow is worth only 39 cents in today’s terms at 10%. This is why terminal values are sensitive to the discount rate — a large number 10 or 15 years out gets discounted aggressively.

Setting the discount rate

The discount rate is where most DCF errors live. Use the wrong rate and you’ll accept bad investments or reject good ones.

For corporate capital budgeting: use WACC (weighted average cost of capital). WACC blends the cost of equity and cost of debt, weighted by their proportions in the capital structure. A company with 60% equity at 12% cost and 40% debt at 5% after-tax cost has a WACC of 9.2%.

For equity investments (buying stocks): use your required rate of return. A passive investor might use 8-10% for diversified market returns. An activist or private equity investor might require 15-20%.

For real estate: typical range is 6-10% depending on property type, location, and risk. Cap rate minus growth rate gives a rough starting point.

For startup or early-stage businesses: 20-35% or more is common because cash flow forecasts are highly uncertain and many projections don’t materialize.

Real-world examples

Commercial real estate acquisition

Purchase price: $1,200,000. Expected net operating income (rent minus operating expenses) for 7 years: $90,000, $92,700, $95,481, $98,345, $101,296, $104,335, $107,465. Expected sale price at year 7: $1,380,000. Required return: 8%.

Software project with uncertain returns

A tech company considering a $500,000 internal project. Projected savings/revenue: $80,000 / $110,000 / $130,000 / $145,000 / $160,000. WACC: 12%.

Terminal value: the number that dominates everything

For businesses and long-lived assets, terminal value often represents 60-80% of the total DCF value. It’s the biggest input and the most uncertain one.

Two methods for estimating terminal value:

Gordon Growth Model (perpetuity growth): TV = FCF_n × (1 + g) / (r − g), where g is the long-term growth rate. The g you use matters enormously. A terminal growth rate of 3% vs 2% on a $50M final-year FCF at 10% discount rate changes terminal value by $50M (from $400M to $350M). Use GDP growth rate or inflation as a ceiling for g — a company can’t grow faster than the economy forever.

Exit multiple: TV = Final year EBITDA × Industry multiple. More market-grounded. If comparable companies trade at 8x EBITDA and your final-year EBITDA is $30M, terminal value is $240M. Still uncertain because multiples fluctuate, but anchored to observable market data.

Enter the terminal value as a lump sum in the optional field and the calculator discounts it to present value at the appropriate year.

Common mistakes

Circular discount rate. Using the expected return of the investment itself as the discount rate guarantees a positive NPV. The discount rate must reflect an alternative: what you could earn elsewhere at the same risk level.

Nominal cash flows with a real discount rate (or vice versa). If your cash flows are in nominal terms (including inflation), use a nominal discount rate. If they’re real (inflation-stripped), use a real rate. Mixing them systematically overstates or understates NPV.

Treating terminal value as precise. Terminal value is a rough estimate of value beyond the forecast period. A DCF where terminal value represents 85% of total value is mostly a terminal value assumption dressed up as a detailed model. The model is only as good as its terminal value input.

Forgetting working capital and capex. Free cash flow is not net income. It’s net income plus depreciation/amortization minus capex minus increases in working capital. Using net income in the cash flow rows overstates free cash flow for capital-intensive businesses.

Sensitivity analysis: the step you can’t skip

A single DCF output is a point estimate. Point estimates for long-duration cash flows are unreliable by nature — the farther out the projection, the wider the reasonable range of outcomes.

Sensitivity analysis replaces the point estimate with a range by varying the key inputs and seeing how the NPV responds.

The two variables that move DCF values the most are almost always the discount rate and the terminal value (or the terminal growth rate used to derive it). Run the model at your base case, then test:

Discount rate: base case ± 2 percentage points. For a business valued at 10% discount rate, also run at 8% and 12%.

Terminal growth rate: if using Gordon Growth, test your assumed growth rate ± 1 percentage point. Small changes here create large changes in terminal value, which then drives total NPV.

Revenue growth assumption for years 3-10: optimistic, base, and conservative scenarios.

If NPV is positive across most of the sensitivity grid, the investment is robust. If NPV only stays positive in the optimistic corner, the investment thesis depends heavily on things going right. That’s a different risk conversation.

The calculator lets you re-run quickly by changing inputs. Build a 3×3 grid manually using the tool for any significant decision.

The bottom line

DCF is the theoretically correct framework for valuing any asset that generates future cash flows. What you’re buying when you invest is a claim on those future flows, and the DCF tells you what that claim is worth at your required rate of return.

In practice, DCF is most reliable when cash flow forecasts are grounded in real data (contracts, historical performance, comparable businesses) and when the discount rate reflects genuine alternative return opportunities.

Use it alongside comparable analysis. A DCF that implies a 40% premium to the sector’s trading multiple deserves scrutiny even if the model is technically correct. The best analyses use both: DCF for intrinsic value, comps for market context.