November 2008
Beginner
448 pages
11h 33m
English
Before looking at discounted cash flow methods, it should be pointed out that there is less reliability with discounted cash flow analysis where there is future uncertainty, the environment is changing, and cash flows themselves are hard to predict.
Take into account the time value of money by using the discounted payback method. The payback period will be longer using the discounted method because money is worth less over time.
How to Do It: Discounted payback is computed by adding the present value of each year's cash inflows until they equal the investment.
Example 5
Assume the same facts as in Example 3 and a cost of capital of 10 percent.
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