2. Discounted Cash Flow
• DCF – method of analysing future income and
• Discount these back to Present Value, using
Time Value of Money principles.
• Basically, take the period usually yearly, might
be quarterly or monthly
• Subtract money going out from money coming
• Result is net cash flow for that period.
3. Net Cash Flow
• Net cash flow for each period may be positive
• Discount that back to Present Value
• Add up the totals
• = Net Present Value
4. DCF Example
• University FM department considering building
student residences to let.
• Income from residences against expenditure on;
• For following example, all expenditure
6. DCF NPV Points To Note
• Can allow for future known or predicted
• Difficulties in
• Variable costs e.g. will energy costs remain
constant in real terms over the period?
• How realistic is the discount rate?