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Learn DCF Money Printing Machine Example | Understanding Discounted Cash Flow (DCF) Analysis
Mastering Discounted Cash Flow Analysis with Excel
course content

Course Content

Mastering Discounted Cash Flow Analysis with Excel

Mastering Discounted Cash Flow Analysis with Excel

1. Introduction to Business Valuation
2. Understanding Discounted Cash Flow (DCF) Analysis
3. Cash Flow Forecasting and Discount Rate Fundamentals
4. WACC, Terminal Value & Sensitivity Analysis
5. Building a DCF Valuation Model in Excel
6. Practical DCF Case Study – Company Valuation in Action

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DCF Money Printing Machine Example

Imagine a business (the machine) that produces predictable cash flows: $50,000 per year for five years. A naΓ―ve approach might value the machine at $250,000 ($50K Γ— 5). But this ignores a foundational principle in finance: money today is more valuable than money tomorrow.

The time value of money (TVM) tells us that each future $50,000 payment must be adjusted (discounted) based on how far in the future it arrives. This adjustment reflects opportunity cost, risk, and inflation.

If we assume a discount rate of, say, 10%, the DCF would look like this:

DCF=50,000(1+0.10)1+50,000(1+0.10)2+β‹―+50,000(1+0.10)5\text{DCF} = \frac{50{,}000}{(1 + 0.10)^1} + \frac{50{,}000}{(1 + 0.10)^2} + \cdots + \frac{50{,}000}{(1 + 0.10)^5}

You'll see that each year's cash flow is worth less in today's dollars. The total DCF will be less than $250,000.

This technique allows you to compare investments or business opportunities that may have the same total return but very different timing profiles.

Think of it like this: would you rather get $50,000 now, or in five years? Most people choose "now"β€”because they could invest, use, or save it today. DCF helps capture that preference numerically.

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SectionΒ 2. ChapterΒ 2

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course content

Course Content

Mastering Discounted Cash Flow Analysis with Excel

Mastering Discounted Cash Flow Analysis with Excel

1. Introduction to Business Valuation
2. Understanding Discounted Cash Flow (DCF) Analysis
3. Cash Flow Forecasting and Discount Rate Fundamentals
4. WACC, Terminal Value & Sensitivity Analysis
5. Building a DCF Valuation Model in Excel
6. Practical DCF Case Study – Company Valuation in Action

book
DCF Money Printing Machine Example

Imagine a business (the machine) that produces predictable cash flows: $50,000 per year for five years. A naΓ―ve approach might value the machine at $250,000 ($50K Γ— 5). But this ignores a foundational principle in finance: money today is more valuable than money tomorrow.

The time value of money (TVM) tells us that each future $50,000 payment must be adjusted (discounted) based on how far in the future it arrives. This adjustment reflects opportunity cost, risk, and inflation.

If we assume a discount rate of, say, 10%, the DCF would look like this:

DCF=50,000(1+0.10)1+50,000(1+0.10)2+β‹―+50,000(1+0.10)5\text{DCF} = \frac{50{,}000}{(1 + 0.10)^1} + \frac{50{,}000}{(1 + 0.10)^2} + \cdots + \frac{50{,}000}{(1 + 0.10)^5}

You'll see that each year's cash flow is worth less in today's dollars. The total DCF will be less than $250,000.

This technique allows you to compare investments or business opportunities that may have the same total return but very different timing profiles.

Think of it like this: would you rather get $50,000 now, or in five years? Most people choose "now"β€”because they could invest, use, or save it today. DCF helps capture that preference numerically.

Everything was clear?

How can we improve it?

Thanks for your feedback!

SectionΒ 2. ChapterΒ 2
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