CHAPTER 22Calculation 16: Discounted Cash Flow

What It Means

In a previous chapter, you saw how to find the present value of a single future cash flow. Doing so allowed you to know the worth of that cash flow in current dollars.

The typical investment property generates more than one cash flow over time. You hope that it will generate positive cash from operations each year, and you certainly expect to end up with cash to take home from the eventual sale of the property. You consider these sale proceeds to be a cash flow also.

Collectively, your investment’s cash flows represent its entire income stream. When you discount each of these cash flows back to its present value and then add those PVs up, the sum represents the present value of the ...

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