Presented by Erick Jude Vargas

Jaz Maghanoy

Net Present Value with

Conventional Cash Flow
 What is Conventional Cash
Flow?
Is a series of cash flow which, over time, go in one
direction. It means that if the initial transaction is an
outflow, then it will be followed by successive periods of
inward cash flows. Although rare, Conventional Cash
Flow can also mean that if the first transaction is a cash
inflow, it is followed by a series of cash outflows.
 Conventional Cash Flow

Mathematically, it is presented as
(-a + b + c + d + e). From the
formula, we can see that there’s a
The most commonly
cash outflow in year 1, which is used pattern for
followed by cash inflows for the conventional cash
following four years. Conventional
Cash Flow is a technique often
flow is net present
applied in discounted cash flow value (NPV) analysis.
analysis.
 What is Net Present Value (NPV)

It is the value of all future

cash flows
(positive and negative) over
the entire life of an
investment discounted to the
present.
 Net Present Value
(NPV)
One very useful application of the time value of money is
when the Net Present Value method is used to determine
whether a project should be accepted or rejected by a
company. The basic decision rule is to accept the project if
the net present value is positive and reject if the net
present value is negative. This capital budgeting technique
is applied by determining first all the relevant cash flows
(positive and negative) of a project then calculate the
present values of these cash flows using an appropriate
discount rate (given the riskiness of the project)
 Imagine a project that costs Php
EXAMPLES: 100,000.00 and will provide three
cash flows of Php 50,000.00, Php
Given: 30,000.00 and Php 80,000.00
Initial Investment = 100,000.00 over the next three years.
Rt = 50,000.00 30,000.00 and 80,000.00 Assume there is no salvage value
i = 8% at the end of the project and the
t = 3 years required rate is 8%. The NPV of
the project is calculated as follows
NPV = (50,000/(1 + 0.08)¹ + (30,000/(1 + 0.08)² + (80,000/(1 +
0.08)³ - 100,000.00

NPV= (50,000/(1.08) + (30,000/(1.11664) + (80,000/(1.259712) -

100,000.00

NPV = (46,296.30 + 25,720.16 + 63,506.58) – 100,000.00

NPV= 135,523.04 – 100,000

NPV= ₱35,523.04
Since the net present value is positive, then the company
should accept the project.
 A project requires an initial outlay of
EXAMPLES: Php 100,000.00. The relevant
inflows associated with the project
Given: are Php 60,000.00 in a year one and
Initial Investment= 100,000.00 Php 50,000.00 in years two and
Rt= 60,000 50,000 50,000 three. The appropriate discount rate
i= 11% for this project is 11%. To compute
t= 3 years the net present value, use the formula
below.
NPV = (60,000/(1 + 0.11)¹ + (50,000/(1 + 0.11)² + (50,000/(1 +
0.11)³ - 100,000.00

NPV= (60,000/(1.11) + (50,000/(1.2321) + (50,000/(1.367631) -

100,000.00

NPV = (54,054.05 + 40,8581.12 + 36,559.57) - 100,000.00

NPV= 131,194.74 – 100,000

NPV= ₱31,194.74
 Let us say that Mercury Drugs
EXAMPLES: wants to expand its business in
San Fernando, Romblon and so it
Given: is willing to invest Php
Initial Investment= 100,000,000.00 1,000,000.00. The investment is
said to bring an inflow of Php
Rt= 100,000 250,000 350,000 100,000.00 in first year, Php
265,000 215,000 250,000.00 in the second year,
i= 9% Php 350,000.00 in third year, Php
t= 5 years 265,000.00 in fourth year and Php
215,000.00 in fifth year. Assuming
the discount rate to be 9%.
NPV = (100,000/(1 + 0.09)¹ + (250,000/(1 + 0.09)² + (350,000/(1 +
0.09)³ + (265,000/(1+ 0.09)⁴ + (215,000/(1+ 0.09) ⁵ - 100,000,000.00

NPV= (100,000/(1.09)¹ + (250,000/(1.1881)² + (350,000/(1.295029)³ +

(265,000/(1.41158161)⁴ + (215,000/(1.538624)⁵ - 100,000,000.00

NPV = (91,743.12 + 210,420 + 270,264.22 + 187,732.68 + 139,735.25)

– 1,000,000.00

NPV= 899,895.27 – 1,000,000

NPV= ₱(-100,104.73)
 Presented by Sandra Haro

Thank you very

much!