This discount factor excel template can be a useful tool for analysts when creating financial models. The discount factor is a decimal figure used to discount a cash flow back to its present value. The discount factor increases over time (which means the decimal figure becomes smaller) as the compounding effect builds over time. The formula for calculating the discount factor is as follows: Discount Factor = 1 / (1 x (1 + Discount Rate) ^ n) Where: Discount Rate = Weighted Average Cost of Capital (WACC) n = Number of Periods The discount factor is another way to compute the NPV of cash flows besides using the XNPV function in Excel. While it might not be the fastest approach, it allows analysts to analyze the effects of compounding on each individual cash flow in a discounted cash flow (DCF) analysis. If you’d like to see more examples beyond this discount factor excel template, make sure to check all the Financial Model templates on CFI Marketplace.
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