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DCF for Capital Projects in Condo Association

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Discounted Cash Flow
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Vladimir Shnaydman, United States

DCF for Capital Projects in Condo Association

QUESTION: Hi, Condo association is planning roof replacement ten years from now. Today estimations are $1M. Should discounting be applied to this project? It means that future cost of the project would be 1M/(1+disc. rate)^10. Is it correct? Thank you.
 

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Rishi R Koirala
Teacher, Nepal
 

DCF for Capital Projects in Condo Association

The Present Value of your cost in the tenth year would be as your calculation, you are correct!
You can check the present value you calculated to get 1M by doing:
PV * (1 + dusc. Rate)^10.
It assumes that interest earned by PV each year is reinvested at same earning rate.

 
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Nick Moore
Financial Consultant, United Kingdom
 

Present Value of a Future Value

If the question is "what is the present cost of a roof replacement in ten year's (or any future period)?" then the answer is $1m, as inflation will increase the cost and discounting will bring it back down again.
It gets more complex if there is lots of uncertainty around whether the roof replacement will actually happen, but I would stick to the simpler rule above.

 

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More on Discounted Cash Flow:
Summary
Discussion Topics
topic DCF vs Present Value
topic DCF Method versus CAPM Model
🔥 What is Discounted Cash Flow? (DCF)
topic Advising Finance and Small Business
topic DCF Simple but has Weaknesses!
👀DCF for Capital Projects in Condo Association
Special Interest Group

SIG Leader

Do you know a lot about Discounted Cash Flow? Become our SIG Leader

Knowledge Center

Discounted Cash Flow
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