Calculation Of NPV



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Sir, In the video of Discounted Cash flow where you have shown us how to value a company. You calculated the NPV directly without subtracting the Initial Investment made into the company.
Is it because the terminal value of the company was considered?
However, the initial investment should be be subtracted or the depreciated value of the investment should be taken into account.
Please let me know if i'm going wrong while doing the analysis.

3 Answer(s)


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In DCF the NPV is used to calculate the present value of future cash flows. It does not take into account how the company has been funded.

The impact of initial investment / capital structure of the company is taken into account while using the CAPM formula were we factor in the cost of debt and cost of equity.

But essentially the value of a company is dependent on its future cash flows not how it is funded.

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Thank you very much Binny sir.
Our call helped me to clarify lot of my doubts.

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