discounted cash flow

hi, can anyone remind me how to get this in my head, i just dont seem to get it at all




  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034
    Identify the cash flow for each year (each as a separate amount)
    Multiply each by the appropriate discount factor for that year to find the present value of each future cash flow
    Add these present values up.
    Typically year 0 is the investment (a negative cash flow which doesn't need to be discounted) and each year afterwards is a positive value which you reduce by the discount rate, and the final year has an additional positive cash flow if the asset is sold and brings in a cash flow to represent the residual value.

    Try this link
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  • gingervicki
    gingervicki Registered Posts: 87 ? ? ?
    still confused???

    sorry im still boggled, ill give you the details of what i am trying to do....

    new machine would cost £300000, labour time wouls be reduced from 5 hrs to 2 hrs without compomising quality and failure rate is 0

    yr discount factor 5%
    0 1.0
    1 0.952
    2 0.907
    3 0.864
    4 0.823
    5 0.784

    calculate the discounted lifecycle cost of machine based upon......
    purchase price of £300000
    annual runng costs £30000 for next 5 yrs
    residual value of £50000 at the end of 5 yrs

    then calculate labour saving on annual production of 5000, 3 hr saving per unit and labour rate of £7

    thanks i bet im just being dense

  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034
    I've tried to attach a word doc that might ring some memories
    [email protected]
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