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Discounted cash flow analysis discounts project investments

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For a project to create firm value, the project cash flows must exceed the investment in into the project plus a return for the use of capital.

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The discounted cash flow analysis then discounts project investments and project cash inflows at the firm's cost of capital. A positive NPV project then adds firm value, whereas a negative NPV project will result in loss of stock value.

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The discounted cash flow analysis then discounts project investments and project cash inflows at the firm's cost of capital. A positive NPV project then adds firm value, whereas a negative NPV project will result in loss of stock value.

Discounted cash flow analysis discounts the cash inflows and cash outflows at the cost of capital of the firm. The difference between the present value of cash inflows and present value of cash outflows is called Net Present Value. If the present value of cash inflows is more ...

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