Angie · learn
Discount factor
How much a dollar arriving in year t is worth today, adjusted to mid-year because cash arrives through the year rather than all on 31 December.
How it is calculated
Discount factor = 1 ÷ (1 + WACC)^t
A fuller explanation of this one is still being written. The definition above is the short answer.
See also
- Present value — What a future year's free cash flow is worth in today's money.
- WACC — Cost of equity and cost of debt blended by how much of each the company uses. This is the rate every future dollar is discounted at, and it is the single most leveraged input in the model.
- Discounted cash flow — Valuing a company by projecting the cash it will generate and discounting each year back to today. Everything Angie does is one long DCF.
Educational content, not investment advice. Angie explains how a valuation is built so you can judge it yourself. What you do with that is your call.
