Discounted Cash Flow

Discounted cash flow is a method of calculating the current worth of future cash flows from an asset or investment taking into account the time that is likely to elapse before money is received and the risk involved. Future cash flows are estimated and discounted using an appropriate discount rate in order to calculate their present value. The higher the risk the higher the discount rate. Such calculations are used to compare the current cost of a project or investment with the current worth of expected future returns and hence its attractiveness.

See also: Current Cost Accounting