Discounted cash flow (DCF) is a financial valuation method used to estimate the value of an investment based on its expected future cash flows, which are adjusted for the time value of money. This technique is essential in analyzing potential mergers and acquisitions, as it helps determine the intrinsic value of a target company by projecting its future cash flows and discounting them back to their present value. Understanding DCF allows financial professionals to make informed decisions about whether an acquisition will generate sufficient returns relative to its cost.
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