Introduction to Discounted Cash Flow – NPV
In this lecture we will be looking at how the Financial Manager should go about making capital investment decisions. For example, they may have to decide whether or not it is worthwhile investing $1,000,000 in a new factory. Alternatively they may have to make the choice between several available investments.
Discounted Cash Flow – Net Present Value
This approach looks at the expected cash flows from the investment in question. If over the life of the investment there is an expected cash surplus, then the project will be accepted, whereas if an expected cash deficit the project will be rejected.
To account for the fact that money will be tied up in the project over a period of years (and will therefore either result in interest being paid on money borrowed for the investment, or interest lost on the money invested), the cash flows are discounted at the cost of money (or cost of capital) to the company before calculating the net surplus or deficit and making the decision.
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for the example,why don’t we used the interest 1.2 instead of 1.1?is’t because the interest only be charged starting Feb?
Fantastic lecture,loved it
wow! wt a hell.
Sister. At 10:00 .. John Said we are doing this Discounting to get Surplus or Deficit after accounting the intreset . We will not include or account for Interest again while caculating the NPV.
Dear John,
I have a question regarding NPV calculation.
Why we do not include interest charge in the NPV calculation when we discount the cash flows?
I thought discounting is calculation where we check the future cash flows’s cost in the future. (I do not know if I am wrong)
Thank you very much in advance for your time and help:)
John included the interest charge of 10% when discounting $60,000 to present value.
You are confusing discounting and compounding. You need to watch the recording again.
Clear easy Relevant and knowledgeable too….. WELL DONE GOD BLESS YOU ! : )
very simple and understandable – super nice example
Super….Nice polishing to the topic
Best lecture i have ever had introducing NPV…This gentleman deserves a gold medal..just fantastic
very good lecture
I’m really impressed….. this teacher is fantastic
Thank you very much, this is so helpful…
I finally understand what discounting is all about! For the past few days i’ve only been multiplying figures with each other to get the answer
@aaamna, Did you watch the lecture on interest first?
If you spend money now and get money back later, then to see if you make a cash profit or cash loss, you need to take account of the interest (because you have either borrowed money and are paying interest, or even if you already have the money you will be losing interest if you put the money into a machine).
One way would simply be to add on interest to the amount you paid at the beginning (that is the chapter on interest), but the standard way (and the way for the exam) is to effectively ‘remove’ interest from the receipts – to work backwards – which is what discounting is.
Hope that helps a bit!
@aaamna, Oooops – I have just realised that I misread your message
(
I thought you said you did NOT understand, but now I see that you DO understand
))
Great!
Very good lecture
this lecture helped me alot thank you very very much
i’m truly grateful for this video!
Thank you very much. Keep it up. God bless you
Great Lecturer
@ashifraj it should work,
are you running up to date iOS 5 software?
Why I can’t watch the video in my iPhone 3GS? Do I need to download any software to watch the video?
this is really good
Thanks a lot.
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The lectures delivered by Me John are just too good to be free. Thanks to the Opentution crew for giving all of these free for the whole world. I have no money for lectures but I am very happy that I have more than a class lecturer but a teacher. Thanks once more.
please the volume is so low
my idea of learning is knowing why you are doing certain things and not only the answer, for me to be able to apply it even when given a question.. and I should say I get were this is coming from and I am so much greatful thank you so much… I am understanding present values more and in a better way now…
I advice people to have a look at these videos… They are worth it
wow, i have been a baby but now am grown up ! i was not even understanding why some tchniques are called DCFs! Brilliant
Thank you so much!!
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