25.5.B - Discounted Cash Flow (DCF) Techniques
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Practice Questions
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Define Net Present Value (NPV).
💡 Hint: Think about how future cash flows are valued against initial investments.
What does a positive NPV indicate?
💡 Hint: Remember the acceptance rule based on cash flow values.
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Interactive Quizzes
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What does a net present value greater than zero signify?
💡 Hint: Remember the basic acceptance rule for investments based on cash flows.
True or False: The Profitability Index can be used to prioritize projects when funds are limited.
💡 Hint: Think about how you evaluate which projects to invest in first.
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Challenge Problems
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An investment project requires an initial outlay of $250,000 and expects to generate cash inflows of $80,000 at the end of each year for 4 years. Calculate the NPV using a discount rate of 12%. Thrive and discuss if the investment is beneficial.
💡 Hint: Break it down year by year to simplify.
If a project has an unconventional cash flow pattern—say, it generates $50,000 in the first year, loses $20,000 in the second, and earns $60,000 in the third. Discuss how you would determine the IRR and the challenges faced.
💡 Hint: Focus on the pattern and implications on calculation methodologies.
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