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 |
