The Cost Of Cash Flow Essay

1074 Words Oct 30th, 2015 null Page
Since money has time value in every economy, so evaluating cash flows which were generated from some periods requires a procedure. The discounted cash flow provides a rational technique to calculate a present value which might help in adjusting the future cash flows to depict the fact that money planned to receive in future features lesser worth than what is being received at present. Its analysis involves the use of future free cash flow and discounts them to find the present value, which is then used to calculate the potential for investment. The formula of Net Present Value is as follows:
For the company, to make a decision among the three investment options, it is important to consider that the value reached at through the discounted cash flow analysis should be greater than the current cost of investment. Based on the formula and the costs and benefits of them, it can be calculated the NPV between them. Table 5 illustrates the NPV for every option in this project. Overall, all options have NPV of cash flows that greater than zero. It indicates that this is a valuable project with option 1 as the most reasonable investment since it has the greatest NPV at AUD 167.59 million, followed by option 2 and option 3 which account for AUD 161.59 million and AUD 142.59 million respectively. With the promising value of NPV, it is not surprising that the palm oil industries in Indonesia grow very fast over the past 2 decades.
Another method of investment appraisal is the Internal…

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