Calculating the discount rate for a discounted cash flow (DCF) analysis is a crucial step in determining the present value of future cash flows. It represents the cost of capital that is used to adjust future cash flows to their present-day value.
The discount rate is a crucial determinant in a DCF analysis. It affects the present value of future cash flows and, hence, the valuation of a company or investment. Over the years, there have been various methodologies developed to calculate the discount rate, each with its advantages and disadvantages.