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john,
For Investment Appraisal Which yield Should I take into account if its a New investment. Shall I take the Dividend Yield of a company and use that figure to calculate the NPV or use in different way. As i am in stuck with finding the correct Yield.
I was Also wondering if i have to do a Projected Cash flow. I shall have to take it back interest and the depreciation right? and Use that Figure to Calculate the NPV?
Would appreciate any reply.
In investment appraisal we discount at the weighted average cost of capital (which is certainly not the same as the dividend yield).
In arriving at the cash flows we add back any depreciation (because it is not a cash flow) and ignore any interest paid (because the interest is used in the calculation of the WACC and accounted for in the discounting).
I do suggest that you watch our free lectures, which explain all of the above.
Our lectures are a complete course for Paper F9 and cover everything needed to be able to pass the exam well.
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