Question

How do I calculate present net cash flow and net value?

Answer 1

The net cash flow is the difference of annual revenue- annual cash operating costs. The net cash savings is reduced for tax amounts if it is taxable. Also tax savings on deprecation is added to cash flows. The present value of annual cash flows is arrived based on cost of capital. The cost of capital is the discounting rate at which present value of annual cash flows will be computed. If in the last year of project there is release of working capital and salvage value of the initial investments it is added to the annual cash inflows.

The net present value (NPV) is the difference between present value of cash inflows and initial investment. If NPV is positive the project is accepted else the project is rejected. Initial investment is cost of new project minus salvage value of existing assets, if any sold and increase in working capital