## Discounted cash flow - self-test questions

Why not have a go at the following examples to see how well you have understood the calculation of discounted cash flow and net present value?

A firm has to choose between three possible projects and the details of each project are as follows:

Capital cost | $000 |
---|---|

Project A | 300 |

Project B | 500 |

Project C | 450 |

Net cash inflow ($000) | |||
---|---|---|---|

Project A | Project B | Project C | |

Year 1 | 75 | 100 | 50 |

Year 2 | 125 | 200 | 75 |

Year 3 | 125 | 300 | 250 |

Year 4 | 100 | 300 | 300 |

Year 5 | 75 | 150 | 200 |

Assume a discount rate of 8%. The discount factors for this are given in the table below.

Discount factors 8% | |
---|---|

Year 1 | 0.926 |

Year 2 | 0.857 |

Year 3 | 0.794 |

Year 4 | 0.735 |

Year 5 | 0.681 |

1 |

2 |

3 |