Discounted cash flows (DCF) is a financial valuation method used to estimate the value of an investment based on its expected future cash flows, adjusted for the time value of money. This approach recognizes that a dollar received today is worth more than a dollar received in the future due to its potential earning capacity, making it crucial in capital budgeting decisions. DCF analysis allows businesses to assess the profitability and feasibility of investment projects by calculating the present value of expected cash inflows and outflows over time.
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