This is a method in finance that is always used to value business organization assets with the utilization of the total value of money over a given period with the estimation of future cash flow and discounts through the cost of capital to determine their present value.
The analysis of the discounted cash flow is always influenced by the rate of discount in the market at the time when the analysis is carried out. This means that the discount rate will be changing with time. The changes are likely to cause inaccuracy when developing the analysis of discounted cash flow. An error is liable to be more costly because given difference in the assumed discount rate in the market and the actual discount rate at the time will incur losses to the investor who could have underestimated the value and has to add more money than budgeted for which will negatively affect goods and services.
The discounted cash flow analysis usually assume that the cash flow will always increase over a period and explicitly given as ten years is not always very effective. This is because as much as the cash flow will increase due to time differences the business also incurs losses in the long run. The losses will then reduce the total income that was accumulated by the company, and the cash flow could be less than estimated initially. There are also risks with an increase in time such as disasters and inflation through which the business organization has to allocate more cash to maintain its stability in the market.
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