What is a Discounted Cash Flow - DCF?

The video tutorial explains the concept of discounted cash flow (DCF), emphasizing the time value of money and how inflation affects cash value over time. It covers the calculation of present value and net present value (NPV), and introduces the internal rate of return (IRR) as a measure of project profitability. The tutorial advises project managers to understand these financial principles to effectively build business cases and conduct investment appraisals, even if they rely on financial experts for detailed calculations.

Why might someone prefer $1000 today over $1000 in two years?

• Because $1000 today is the same as $1000 in two years.

• Because $1000 today can be invested to grow over time.

• Because $1000 today will decrease in value over time.

• Because $1000 today is worth less than $1000 in two years.

What does a cash flow record?

• Only the inflow of cash in a business.

• Only the outflow of cash in a business.

• Both inflow and outflow of cash in a business.

• The profit and loss of a business.

What is the effect of inflation on money over time?

• Inflation stabilizes the value of money over time.

• Inflation decreases the value of money over time.

• Inflation has no effect on the value of money.

• Inflation increases the value of money over time.

What does a discounted cash flow apply to each cash element?

• A fixed amount of money.

• A percentage uplift based on rate of return and time elapsed.

• A decrease in value based on inflation.

• A random percentage change.

What is the net present value (NPV)?

• The total future value of all cash flows.

• The sum of present values of all cash flows.

• The difference between inflow and outflow of cash.

• The interest rate applied to cash flows.

What does a positive net present value indicate?

• A negative return on the project.

• No return on the project.

• A break-even point for the project.

• A positive return on the project.

What is the internal rate of return (IRR) used for?

• To assess the inflation rate over time.

• To calculate the total cash flow.

• To determine the equivalent interest rate generated by investments.

• To find the present value of future cash flows.