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Registered Posts: 1,774 Beyond epic contributor 🧙‍♂️
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

• Registered Posts: 6,970 Beyond epic contributor 🧙‍♂️
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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 ?
• Registered Posts: 1,774 Beyond epic contributor 🧙‍♂️
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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)
• Registered Posts: 466 Dedicated contributor 🦉
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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
• Registered, Moderator Posts: 2,034 mod
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And by adding the discounted value of the proceeds of the disposal, your NPV is pretty much the same as £39.72 (thousand)
Sandy
sandy@sandyhood.com
www.sandyhood.com
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