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DCF and NPV method

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Describe how you would use a Discounted Cash Flow and Net Present Value accounting method to make a decision in your business or profession.

a. Describe the DCF and NPV methods (what they are and how they can be used)
b. Write a short story about a sample company who would like to conduct a large investment but they are wondering how soon they will get a return on their investment and how will their cash flow look like.

Next, show some sample figures (not just words) and use the DCF model and NPV calculation to determine whether an investment or project should be carried out or not.

c. Summarize and make a final recommendation.

Thanks a bunch for this!!

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The expert examines DCF and NOV methods.

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Please refer to the **attached file** for the response. Thank you.

DCF AND NPV METHOD WITH COMPUTATION OF PAYBACK
Use of a Discounted Cash Flow and Net Present Value Accounting Methods in
Business Decision

Description of the DCF and NPV methods (what they are and how they can be used)
Discounted cash flow method is one of the techniques used in capital budgeting decisions. An investor makes a decision on a probable investment by undergoing the following:
1. Determining the amount of intended investment or initial investment
2. Estimating possible future cash flows as a result of the investment that must be discounted to the present ( or computed in terms of their present values)
3. Estimating the number of years the investment would be providing cash flows
4. Determining the appropriate discount rate which may be equivalent to the required rate of return or the cost of capital
The reason behind discounting the future cash flows into the present is that the value of the investment (as indicated by the future cash flows and the initial investment) should be measured in terms of today's dollars.
The discounted cash flow method takes into account the time value of money which ...

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Elisa Valdez, PhD
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  • Bachelor of Science in Business Administration, University of the Philippines
  • Master in Business Administration, Saint Mary's University
  • Doctor of Philosophy in Education, University of the Philippines
  • Doctor in Business Adminstration (IP), Polytechnic University of the Philippines
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