ECR June 2009 Answers

jewels.pjewels.p Font Of All KnowledgePosts: 1,774Registered
I am trying to master Discounted Cash Flows and N.P.V at the moment. (Quiet at work this week so trying to study a lot). I had a look at June's question on this to see if it helped me any. The N.P.V for Year 0 is £39.72 I don't understand this at all!

How do you calculate Year 0?

Thanks

Comments

  • A-VicA-Vic Expertise Guaranteed Posts: 6,970Registered
    jewels.p wrote: »
    I am trying to master Discounted Cash Flows and N.P.V at the moment. (Quiet at work this week so trying to study a lot). I had a look at June's question on this to see if it helped me any. The N.P.V for Year 0 is £39.72 I don't understand this at all!

    How do you calculate Year 0?

    Thanks

    i think i remember this did you add on the £50 inputted capital ?
  • jewels.pjewels.p Font Of All Knowledge Posts: 1,774Registered
    In my tutorial notes it says the difference between the Total Discounted Cash Flow and the Initial Cost is the NPV. Therefore I make it Year 0 - (400) Year 1 131.58 Year 2 173.14 Year 3 101.25 making a total of 5.97. The Capital Expenditure is 400 and it was sold for 50
    (Above figures are in £000)
  • crispycrispy Trusted Regular SouthamptonPosts: 454Registered
    Hello,

    I couldn't see any model answers but yours look all correct to me (Yr 0 Being 400 * 1.000), other than Yr 3.

    For Yr 3 I would have included the disposal proceeds of 50, as it is an incremental cash flow relevant to the investment - that would make the Net Cash flow 200 * 0.675 = 135.

    Hope this helps
  • SandyHoodSandyHood Font Of All Knowledge Posts: 2,034Registered, Moderator
    And by adding the discounted value of the proceeds of the disposal, your NPV is pretty much the same as £39.72 (thousand)
    Sandy
    [email protected]
    www.sandyhood.com
  • jewels.pjewels.p Font Of All Knowledge Posts: 1,774Registered
    Thanks for your help

    Julie
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