I was given a set of cash flows and need to calculate the NPV as of 01/01/2020. Do I need to consider the cash flows before 1/1/2020? Any advice will be appreciated!
Cash flows follow:
FY 2017 90
FY 2018 -50
FY 2019 30
FY 2020 40
FY 2021 60
FY 2022 65
FY 2023 70
FY 2024 -45
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What was the discount rate you were given? The NPV of all cash flows before 01/01/2020 would just be the net total, so it would be (90 - 50 + 30) = 70. That's because as of 01/01/2020, you would have 70 in cash, and since it's cash you have now, it's face value. You would then just find the NPV of all of the future cash flows normally then add them to 70 as that's what you have now.
NPV is used to calculate the present value of future cash flows, but since you were given past cash flows, I suppose you would just add the face value of the past cash flows? Idk for sure; I'm just an intern.
Thank you for answering. The most confusing part is the cash flows before 1/1/2020, and I was thinking about using CF*(1+R)^t to find the value as of 1/1/2020. Your explanation also makes sense; maybe I am overthinking about the cash flows before 1/1/2020.
BTW, the discount rate is 6%. I know how to figure out the PV of future cash flows.
No, any cash flow prior to 2020 is completely irrelevant and is meant to throw you off. Including FY 2020 and everything past that.
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