ECR June 2009 Answers

jewels.p

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

A-Vic

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.p

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)

crispy

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

SandyHood

And by adding the discounted value of the proceeds of the disposal, your NPV is pretty much the same as £39.72 (thousand)

jewels.p

Thanks for your help

Julie