Discount factor

Also called: present value, time value of money

How much 1 received in a future year is worth today.

Formula

Discount factor = 1 ÷ (1 + WACC) ^ year

Worked example

1. Example at 8.5%: year 1 = 1 ÷ 1.085 = 0.922; year 5 = 1 ÷ 1.085⁵ = 0.665.

How to read it

Present value = Cash flow × Discount factor.

See it with real numbers: DCF → (free account)