Operating Cash Flows

      
			              Best Practices
			            
							              33

		            		Joyce
Student (MBA), United States
			            
Operating Cash Flows

	          		What is the NPV of a project that has cost of 52,125 and net cash flows of 12,000 per year for 8 years with a cost of capital of 12 percent?
				      
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						            	Mukela Namushi Mubano
Accountant, Zambia
												
				                Operating Cashflows

													12,000 x 4.968 (discount factor) = 59,616.

NPV = 59,616 - 52,125 = 7,491

The project could be undertaken since the NPV is positive. However, one should not overlook the qualitative effects of deciding to go ahead with the project.
				                
										              0

						            	KATHRYN STEINER, MBA
Entrepreneur, United States
												
				                NPV - Question on Calculating Discount Factor

													How did you calculate the discount factor of 4.968?
				                
										              0

						            	Mark May
Student (University), United States
												
				                Calculating Discount Factor

													The discount factor is arrived from (p/a, i, n) using compound interest table, where under p/a I = 12, n=8.

Or in Excel =pv(i, n,-1) which is = pv(.12,8,-1) = 4.9676.
				                
										              0

						            	KATHRYN STEINER, MBA
Entrepreneur, United States
												
				                Caculating Discount Factor

													Right, finding the present value. Pv = fvn/(1+1)n

Thanks for the clarification.
				                
										              1

						            	Management Fan
Analyst, Philippines
												
				                NPV for Capital Budgeting

													The IRR is 16% which is higher than the discount factor use - 12%. In addition your payback period is around 4.35 year.
				                
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