The goal of discounted cash flow (DCF) valuation analysis is to answer the question, “What is this asset worth?” as in, what is the price that a rational person would be willing to pay for this asset in a competitive asset market. It is a question to which good answers are often needed. The DCF valuation model is a hypothesis about the answer: market value (MV) equals the sum of the discounted expected future cash flows that the asset will provide to its owner:

where E(CF_i) is the expected cash flow at future time i, r_i is the discount rate for cash flows to be received from this asset at future time i, and N is the number of dates where cash flow is expected to be received. The cash flow expectations and discount rates are those of the equilibrium asset buyer who competes with other potential buyers facing—at least when the asset is fungible and has a perfect substitute owned by others—numerous potential sellers.

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