Discounted Cash Flows is a way of valuing an asset

In DCF analysis, the value of an asset is the sum of the cash flows of that asset. As One dollar today is more valuable than one dollar tomorrow, each cashflow should be discounted by a discount rate.

Because of compound interest, the discount rates progress exponentially. This means that far away cashflows are discounted a lot more heavier than near cashflows.

$$DCF=\frac{C{F}_1}{(1+r{)}^1}+\frac{C{F}_2}{(1+r{)}^2}+\frac{C{F}_3}{(1+r{)}^3}+...+\frac{C{F}_n}{(1+r{)}^n}$$

Appropriate discount rates reflect timing and risk.

econ