1. Investment Appraisal – Discounted Cash Flow (NPV)
3.3 Decision-making techniques

2. What you need to know
c) Discounted Cash Flow (Net Present Value only)

3. Concept links
NPV

4. What is Investment Appraisal?

5. Three Main Methods of Investment Appraisal
Payback Period
Average Rate of Return
Discounted Cash Flow (NPV)

6. The Results of Each Method… Are Measured in
Payback Period
Average Rate of Return (ARR)
Discounted Cash Flow (NPV)

7. Net Present Value

8. What is Discounting?

9. The Time Value of Money
Better to receive cash now rather than in the __________
Future cash flows are worth ________
Use _______________to bring cash flows back to their ___________________
Relevant discount factor determined by required _________________________

10. Calculating the Present Value of a Future Cash FlowX =

11. X = For Example Discount Factor Cash Flow £20,000 0.9 Present Value

12. Example of Calculating NPV
Net present value calculates the _________________________________of a project’s future cash flows
Add together all the Present Values of Future Cash Flows

13. The NPV Decision
Accept the Project
Reject the Project

14. Investment Project NPV
Year
Cash
Flows
Net
Flow
Discount
Factor
Present
Value
Investment
(100,000) 1
Project Profits
40,000
0.91 2
50,000
0.83 3
60,000
0.76
Total

15. Benefits of Using NPV…

16. Drawbacks of Using NPV…