Corporate Finanace

aadhititikoo
Posts: 2
Joined: Tue Sep 22, 2015 4:30 am

Corporate Finanace

Postby aadhititikoo » Fri Oct 09, 2015 4:18 am

How is discounted cash flow calculated on financial calculator (required to calculate discounted pay back period) for 3rd year. e.g.
Initial investment is 60,000
1st year cash inflow - 10,000
2nd year cash inflow - 15000
3rd year cash inflow - 20,000

Rate is 12%.
Now i need Discounted CF for 3rd year.

edupristine
Finance Junkie
Posts: 722
Joined: Wed Apr 09, 2014 6:28 am

Re: Corporate Finanace

Postby edupristine » Fri Oct 09, 2015 9:32 am

Press CF
It will demand for initial investment which is used when we are calculating NPV pf project. So, Initial investment will not be used in this question.
Now press down arrow. press 10000 [ENTER].
It will demand for Frequency. 1 will be already there. Do not press anything in the frequency columns, here and in future in this question.
Press down arrow. It will demand for 2nd cash flow. Press 15000[ENTER].
It will demand for Frequency again.
Press down arrow. It will demand for 3rd cash flow. Press 20000[ENTER].
Press NPV. It will demand for I. Press 12[ENTER].
Press down arrow. It will show NPV. Press CPT.

Answer will be 35,122.08455

aadhititikoo
Posts: 2
Joined: Tue Sep 22, 2015 4:30 am

Re: Corporate Finanace

Postby aadhititikoo » Sat Oct 10, 2015 6:39 am

The above calculation is done to compute NPV but i don't need NPV here. i need to know how PV is calculated like it is done in case of discounted Pay Back Period.
e.g.
CFAT given is
1st year - 1500
2nd year - 1200
3rd year - 900
4th year - 600
Initial investment - 3000. Cost Of Cpital - 6%
i want to know how Discounted CF will be calculated at 6% (using calculator) so that i will know Discounted Pay Back period.

edupristine
Finance Junkie
Posts: 722
Joined: Wed Apr 09, 2014 6:28 am

Re: Corporate Finanace

Postby edupristine » Mon Oct 12, 2015 1:18 pm

In our opinion, in this question there should be more cash flows to calculate discounted payback period because 3 cash flows are not recovering the initial investment.
But if there would be more cash flows and if you need to calculate discounted payback period, it would be more convenient through manual calculation.
For eg. If the question was
How is discounted cash flow calculated on financial calculator (required to calculate discounted pay back period) for 3rd year. e.g.
Initial investment is 60,000
1st year cash inflow - 10,000
2nd year cash inflow - 15000
3rd year cash inflow - 20,000
4th year cash inflow-40000

Rate is 12%.
Discounted CF for 3rd year
Solution: 10000/(1+0.08)^1 + 15000/(1+0.08)^2 + 20000/(1+0.08)^3 + 40000/(1+0.08)^4

Discounted Cash flows for Last period = $29,401
Cumulative Cash flows for last period with negative number = $22,004
Number of months from the last period to break even:
Number of months = (22,004)/(29,401/12)= around 9 months.
The discounted payback period is therefore 3 years and 9 months.
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