24.7. Discounted Cash Flow (DCF) Analysis

Try these first

1. 1.

   Define Discounted Cash Flow (DCF).

   Hint

   What is the purpose of this method?

2. 2.

   What does NPV stand for?

   Hint

   It represents the value of money today versus future cash flows.

3. 3.

   What does DCF stand for?

   • Dynamic Cash Flow
   • Discounted Cash Flow
   • Diminished Cash Flow

   Hint

   Think about the method used for cash flow valuation.

4. 4.

   True or False: A positive NPV means you should reject a project.

   • True
   • False

   Hint

   Consider what a positive value means in context.

5. 5.

   Consider an investment which requires an initial outlay of ₹50,000 and is expected to generate cash flows of ₹15,000 each year for 5 years. Calculate the NPV using a discount rate of 10%.

   Hint

   Break down each cash flow and discount it to find the sum!

6. 6.

   A project has a cost of ₹100,000 and expected cash inflows of ₹30,000 yearly for 4 years at a 12% discount rate. What is the NPV?

   Hint

   Convert future values to present values to assess viability.