16634 Chapter Notes - Chapter 5: Opportunity Cost, Sign Convention, Cash Flow
Document Summary
The present value of and the capitalisation of income method of valuation involves discounting the future income streams back to the present day. This process of discounting can be achieved by using the traditional (yp) methodology or by using dcf. Npv can be used to discount both positive and negative cash flows, to produce a present value. Discounted cash flows can therefore be used to work out he market value of a property known as the net present value only if data used is the market data (i. e. market rental). If the data does not represent market data, then the npv will give you the worth of the investment. A dcf can also be used to work out the internal rate of return (i. e. true rate of return) for an investment. The basic cash flow formula for net present value is shown below:
