The Discounted Cash Flow Method is one of the methods under the income approach applied by business valuators in estimating the fair market value of a business. The fundamental basis of this method is based on the premise of value that the business is a going concern and will be in operation well into the future. Based on this premise, the fair market value of a business draws from forecast cash flows which are discounted into the present by a discount rate, the Weighted Average Cost of Capital (WACC). It is important to note that the cash flows which is discounted is not the net cash flow but rather the free cash flow. The forecast free cash flows have two components: first the cash flow during the forecast period and second, the cash flow during the post forecast period normally referred to as the terminal value. To arrive at the fair market value of the business, the sum of the discounted cash flows is reduced by a discount for lack of marketability (if the valuation entity is a closely held business).