Business Valuation Project: DCF Model and Analysis

This project presents a business valuation using the Discounted Cash Flow (DCF) method. The student has analyzed a provided cash flow statement, projecting future cash flows and calculating growth rates to determine the present value of the business. The analysis includes the calculation of growth rates using the Compounded Annual Growth Rate (CAGR), which are derived by comparing the cash flow of the current year with the previous year. The discounted cash flow is used to determine the overall value of the business at the current time period. The project assumes a targeted rate of return of 15% per year. The final valuation, based on these calculations, is determined to be $5,637,964. The project explains the DCF method as a fundamental model used in value investing, highlighting its use in determining the present value of an organization by discounting expected returns using a weighted average cost of capital.

Running head: FINANCE
FINANCE
Name of the Student
Name of the University
Author Note

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Business valuation using DCF
Style Vault
In $ 2019 2020 2021 2022 2023
Cash Inflow
Beginning Cash 773744.4 790616.6 807488.8 824361
sales income 956090.6 956090.6 1012331 1068572 1068572
Loans 740000
Capital
Total cash in 1696091 1729835 1802948 1876061 1892933
Cash outflow
Salaries 225000 225000 225000 225000 225000
Other expenses 512810 457810 457810 457810 457810
Loan payments 152796.4 191296.4 230664.9 270033.3 6208.94
Tax payments 31739.82 65112 81984.18 98856.3 115728.6
Total out cash 922346.3 939218.4 995459.1 1051700 804747.5

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Calculation
Growth rate
1.989538%
(increase)
4.226574%
(increase)
4.055185%
(increase)
0.899345%
(increase)
Total cash in 1696091 1729835 1802948 1876061 1892933
Assuming that the targeted rate of return is 15% per year then
DCF= 1130727 1308004 1185467 1072644 941122.2
DCF= 5637964
Discounted cash flow (DCF) can be described as a valuation method which goes a long
way in estimating the attractiveness of a particular investment. The DCF makes use of a future
free cash flow projection method by discounting them to arrive at an annual rate and understand
estimates.
In the given business valuation, the DCF (Discounted cash flow valuation) of the
business has been done. The discounted cash flow helps in determining the overall value of the
business at the current time period.
Manner in which growth rate changes every year
The growth rate of the business has been calculated using the Compounded annual
growth rate whereby the change in the cash flow has been considered and compared with the
cash flow of the previous year in order to understand the changes. With respect to the same, the
growth rate every year changes based on the increase in the cash flow of the present year as

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compared to the previous year. For instance in the year 2020, the growth rate is 1.98% whereby
the cash flow has changed from 1696091$ to $1729835. In the same manner, with respect to the
year 2021, there has been an increase of 4.22%, in the year 2022, the growth rate as compared to
the previous year is 4.022% and lastly in 2023, the growth rate has been 0.89%. The growth rates
have been positive throughout.
The DCF method
Hence, according to the given formula, the business valuation can be stated to be
$5637964 as of 2019. The discounted cash flow valuation can be essentially described as a
fundamental model used in understanding value investing. The model is essentially made use of
by calculating the present value of an organization by dividing it with expected returns to gather
the present value by taking a discounted rate or popularly known as the weighted average cost of
capital
In the given case, the discounted rate was assumed to be 15% and the growth rate each
year was calculated using the increase in the cash inflows per year. The growth rate for the
period ranged between 0.89-4.2percent. Finally it was observed that the business has been valued
at $5637964 which can be taken to be considerably fair.