X plc which uses a discounted cash flow rate of 5% has £200 million to invest.

It can choose form the following two options:

Option 1

TIme	Cashflow £m	Discount Factor @ 5%	Present Value £m
0	(200)	1	(200.0)
1	40	0.952
2	50	0.907
3	70	0.864
4	80	0.823
TOTAL	40	Net Present Value

Option 2

TIme	Cashflow £m	Discount Factor @ 5%	Present Value £m
0	(200)	1	(200.0)
1	60	0.952
2	60	0.907
3	60	0.864
4	60	0.823
TOTAL	60	Net Present Value

Complete the right hand column to show the present values and the Net Present Value. 

Answer rating: 100% (QA)

Calculate the present values for Option 1 Using a discount rate of 5 Time 0 cashflow ... View the full answer