Discounted cash flows (DCF) refer to a financial valuation method that estimates the value of an investment based on its expected future cash flows, adjusted for the time value of money. This method is crucial as it helps investors determine how much future cash inflows are worth today by discounting them back to their present value, providing a clearer picture of an investment's profitability. DCF is especially relevant in understanding the pricing and risk associated with assets over multiple time periods, which is a central theme in more advanced financial models.
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