# discounted cash flow

Registered Posts: 87 ? ? ?
hi, can anyone remind me how to get this in my head, i just dont seem to get it at all

thanks

vicki:001_smile:

• 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
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.

Sandy
[email protected]
www.sandyhood.com
• 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

V
• Registered, Moderator Posts: 2,034
I've tried to attach a word doc that might ring some memories
Sandy
[email protected]
www.sandyhood.com