Definition for : Discounted cash flow model, DCF model

The discounted Cash flow model calculates an Enterprise value on the basis of its ability to generate Free cash flow. To compute the Enterprise value, the Free cash flows are discounted (see Discounting) at a rate that reflects the Risk carried by the Operating assets. The DCF model gives the intrinsic Value (called intrinsic Value – Share) of the company.

(See Chapter 32 Capital structure and the theory of perfect capital markets of the Vernimmen)

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