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Question 1

Steps to Calculate NPV (Memorize the “CASH FLOW” Story)

Answer 1

Back:
CASH FLOW

C: Calculate the Initial Cost (Outlay)

A: Assess the discount Rate (Use CAPM)

S: Shield (Calculate CCA Tax Shield)

H: Harvest the Operating Cash Flows (Revenues and Costs)

F: Finalize with the End Cash Flows (Terminal Value)

L: Look at the Net Present Value (Sum and Compare)

O: Order the Decision (Accept if NPV > 0, Reject if NPV < 0)