Discounted Cash Flow (DCF)
DCF is a valuation method calculating present value of all projected future cash flows discounted at a required rate of return. It is the theoretically correct approach for valuing income-producing assets.
| DCF Component | Description |
| Cash flow projections | Annual NOI forecast for holding period |
| Terminal value | Expected sale price at end of period |
| Discount rate | Required return reflecting risk |
| Present value | Sum of discounted future cash flows |
| Net present value | Present value minus initial investment |
| DCF Inputs: 5-Year Hold | Example Values |
| Year 1 NOI | AED 75,000 |
| Annual NOI growth | 3% |
| Year 5 exit cap rate | 5.5% |
| Selling costs | 4% of sale price |
| Discount rate (required return) | 8% |
| Calculated NPV | Determines if acquisition price justified |
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