Dive into the process of calculating an investment's net present value by determining its discount factor and applying it to Free Cash Flow and Terminal Value to compute Enterprise Value.
To calculate an investment’s net present value (NPV), you must first determine its discount factor. In other words, the discount factor measures the present value of an investment’s future worth.
Any discount factor equation uses the assumption that today’s money will be worth less in the future due to factors like inflation, which gives the discount factor a value between zero and one.
Here’s how by using discount factor and applying it to FCF and TV you can calculate Enterprise Value:
Let’s calculate discount factor in our example: =1/(1+$C$4)^C8
And then discounted FCF and TV: =C24*SUM(C22:C23)
And sum it up to calculate Enterprise Value: =SUM(C25:H25)
How to Learn Financial Modeling
Master financial modeling with hands-on training. Financial modeling is a technique for predicting the financial performance of a business or other type of institution over time using real-world data.
