MGCR 472 Lecture Notes - Lecture 8: Net Present Value, Cash Flow, Real Options Valuation
1 Oct 2016
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Document Summary
The difference between cash received from sales and other sources, and cash outflow for labor, material, overhead and taxes. The sum of all future cash flows of an investment proposal in current value. *the current value is calculated for a given interest rate. Fn = cash flow received n periods later in the future. P = net present value of the cash flow. Future cash flows associated with the investments can be estimated with high degree of certainty. When there is high uncertainty, other methods should be use: real options. Call option : buyer have the right to buy it but not necessary to buy it, seller keep it at the strike price and keep it until buyer buy it as the option premium says. Decisions are dynamic (multi-stage) decisions: phase 1, phase 1 cash flows. Technical and market uncertainties: phase 2, phase 2 cash flows.
