---
id: "prereq-dcf-mechanics"
type: "prereq"
source_timestamps: ["§ Corporate Math"]
tags: ["finance", "valuation"]
related: ["concept-terminal-value-collapse"]
reason: "Required to understand why AI's threat to corporate moats causes massive, immediate collapses in equity valuations."
sources: ["futures"]
sourceVaultSlug: "hbr-seg-futures"
originDay: 2
articleStem: "hbr-foci-72-future-ai-fog"
sourceUrl: "https://hbr.org/2026/04/the-future-is-shrouded-in-an-ai-fog"
sourceTitle: "The Future Is Shrouded in an AI Fog"
---
# Discounted Cash Flow (DCF) and Terminal Value

**Prerequisite knowledge:** How equity valuations are built from **10-year Discounted Cash Flow (DCF)** models, and specifically the outsized role of **terminal value** — the present value of all cash flows beyond the projection period, which makes up **60–80% of a company's market cap**.

**Why it's needed:** Without it you cannot see why AI's threat to corporate moats produces massive, immediate valuation collapses — the mechanism of [[concept-terminal-value-collapse]] (see [[quote-terminal-value]]) and the [[concept-saaspocalypse]].