Describe 'discount cash flow' in relation to emerging brazilian markets and give an example of a...

Describe 'discount cash flow' in relation to emerging brazilian markets and give an example of a valued brazilian company.

Expert Solution

Discounted cash flow (DCF) is a valuation method used to estimate the attractiveness of an investment opportunity. DCF analyses use future free cash flow projections and discounts them, using a required annual rate, to arrive at present value estimates. A present value estimate is then used to evaluate the potential for investment. If the value arrived at through DCF analysis is higher than the current cost of the investment, the opportunity may be a good one.

Calculated as:

DCF = [CF₁ / (1+r)¹] + [CF₂ / (1+r)²] + ........ + [CF_n / (1+r)ⁿ]

CF = Cash Flow

r= discount rate (WACC)

DCF is also known as the Discounted Cash Flows Model.

Example:

Suppose a brazalian company havingexpected future cash flows as below & Discount rate is 10% then it can presently valued as:

Year	BRL Future Cash Flow	Discount @10%	Present value
1	50000	0.909	45450
2	55000	0.826	45430
3	60000	0.751	45060
4	65000	0.683	44395
5	70000	0.621	43470

			223805

Brazilian comapny presently valued is Brazalian real 223805

jeff jeffy answered 2 years ago

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