Practice question · Put in order
Order the steps of a discounted-cash-flow appraisal.
- Discount each cash flow to present value
- Accept if NPV is positive
- Forecast the project’s cash flows year by year
- Choose the discount rate from the opportunity cost of capital
- Sum the PVs and subtract the initial outlay
Hints
- The cash flows must be forecast before any rate can be applied.
- The decision comes last, once the discounted values are summed.
Show the answer
- Forecast the project’s cash flows year by year
- Choose the discount rate from the opportunity cost of capital
- Discount each cash flow to present value
- Sum the PVs and subtract the initial outlay
- Accept if NPV is positive
Why
Forecast → rate → discount → sum → decide: the DCF pipeline behind every serious investment memo.
Practise NPV and IRR
The app has 7 more questions on this lesson, and keeps your place in the course. Business I is free to start.
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