-DISCOUNTED CASH FLOW METHODS-

*Discounting is the process of determining the present value of

a payment or a stream of payments that is to be received in the future*

1. DISCOUNTED PAYBACK PERIOD

READ in the screen then read below:
A discounted payback period gives the number of years it takes to break-even from undertaking the initial expenditure,
By discounting future cash flows and recognizing the time value of money. The metric is used to evaluate the feasibility and
profitability of a given project.

EXAMPLE:
So here in the sample problem, we have an initial investment of 2,324,000 which is expected to generate
600,000 per year for 6 years span. We are asked to calculate the discounted payback period of the investment
when the discount rate is 11% or we shall we say, the prevailing interest rate.
In the formula, it is just present value of the cash flow which was already presented by the previous group.
Sol'n:
In the table under column (A) or cash flow, we have the annual income generated.
While the column (B) is the present value factor, is just divided by (1+i)^n
For the column under discounted cash flow is the product of columns a and b or simply, the present values of 600k
For the last column under cumulative discounted cash flow, is simply the balance to recover the invested amount of 2,324,000.
As we can see, between year 5 and 6 is the year wherein the cumulative discounted cash flow under the last column has changed its sign
from negative to positive as it indicates that the invested capital of 2,324,000 pesos about to breakeven.
So, By getting the base year of 5 since this is the year prior to breakeven. We calculate the exact decimal year for exact breakeven point by
getting the 106,460 and divided it by 320,785 from the last row of column discounted cash flow as shown and highlighted in the screen.
Thus, these give us the value of 5.33 years discounted payback period. So this means, it takes 5.33 years to recover the capital as per this method
which is the discounted payback period.

2. NPV
NPV is used in capital budgeting and investment
planning to analyze the profitability of a projected investment or project.
In the formula, we can see that the net cash inflow is in a form of annuity from t=1 to
t=n which is the number of years then subtracted by the present values of investments or capital,
because we cannot directly subtract the 2 values in a certain equation when they are not
in the same timeline, so in this formula, assuming we got the values of the cash inflow and
the investments in the present value, we can now directly subract them to get the NPV.
This formula is not fixed to all situations because it may vary to a given scenario such as gradient payments, non-uniform payments.

3. IRR
It is a metric used in financial analysis
to estimate the profitability of potential investments.

Factors that influence interest rates in an economy:

Demand for and supply of money,
government borrowing,
inflation,
Central Bank’s monetary policy objectives affect the interest rates.

The internal rate of return (IRR) rule states that a project or investment
should be pursued if its IRR is greater than the minimum required rate of return,
also known as the hurdle rate.

WACC weighted average cost of capital

TAXI BUSINESS
(net revenue: assuming 600-700 pesos per day revenue then subtracted by expenses
like annual registration, franchise & meter, tires, tune-up & oil change, and other maintenance
expenses. Also, the insurance.)

Panguil
This is 3.77-km PANGUIL BAY BRIDGE which costs 6.4 billion pesos under the 40-year loan from Bank of Korea-Economic Development Cooperation Fund.
The construction is currently ongoing. The bridge will connect Tangub, Misamis Occidental and Tubod, Lanao del Norte
and reduce travel time between Tangub and Tubod from the usual 2.5 hours to just 7 minutes.
Once completed, Panguil Bay bridge will become the longest water-spanning completed bridge in the country — surpassing even the San Juanico Bridge.