by computing discounted values of cash flows.
of Option A = 204,847 Option B Year Cash flow Discount factor @ Discounted cash flow= 8% 1 50,000 0.925926 =1/(1+ 8.% )^ 1 46,296 =50000*0.925926 2 90,000 0.857339 =1/(1+ 8.% )^ 2 77,161 =90000*0.857339 3 100,000
460604 Discounted Cash Flow Alternatives Discounted Cash Flow Alternatives Discounted Cash Flow Alternatives As companies continue or expand their operations, they are faced with possible capital budgeting projects that are to be evaluated to ensure
Cash flow Discounted cash flow Year Invest A Invest B Rate Discount factor Invest A Invest B 0 -$61,000 -$74,000 9% 1.00 -$61,000 -$74,000 1 $19,000 (A) $19,000 (B) 9% (C) 1.09 =(1+C)^Year $17,431 =A/1.09 $17,431 B/1.09 2 $19,000 $20,000 9% 1.19
329905 Advantages of Discounted Cash Flow Methods of Capital Investment Advantages of Discounted Cash Flow Methods of Capital Investment There are several advantages of DCF: 1.
Operations Management - Roche Brothers alternatives for expansion of supermarket: The first alternative expands the supermarket at the end of year 0 to 60,000 customers, to 70,000 at the end of year 3, and to 80,000 at the end of year 5. Since the first stage expansion provides a big leap for the company to provide services from 30,000 to 60,000 customers, the initial investment would be higher at the end of year 0 than other two investments. The initial investment would be $1,000,000 at the end of year 0, $500,000 at the end of year 3, and $200,000 at the end of year 5. With this alternative, the company must pay $50,000 of monthly operating expenses.
even for the discounted cash flow is lower.
Net Present Value To calculate the NPV ( Net Present Value) we discount the cash flow at the given discount rates Opportunity #1 discount rate= 8% Year Cash flow PV factor @8.% Discounted
flow benefits for more than one year.
It is also called the discounted cash flow rate of return (DCFROR) or simply the rate of return (ROR).
111458 Applied Nanotech NPV Applied Nanotech NPV NPV is calculated by finding the present value of each cash flow, including both inflows and outflows, discounted at the project's cost of capital.