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Describe the discounted cash flow approach? How are values and discount rates calculated using this approach?

Describe the discounted cash flow approach? How are values and discount rates calculated using this approach?

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ANSWER DOWN BELOW. FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE.

Discounted cash flow approach:

DCF more specific in its approach to calculate value per share.

DCF is based on the cash flows of the company over its lifetime.

It takes the time value of money into consideration.

It's the present value of all the future cash flows of the company/project.

It can be used for both type of companies

1. That pays a dividend.

2. That don't pay a dividend.

Re or Wacc = weighted average cost of capital.

(Re= required rate of return.)

WACC = weight of equity x cost of equity+ weight of debt X cost of debt.

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