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Discounted Cash flow (DCF)/Time-Adjusted (TA) Techniques

The distinguishing characteristics or the DCF capital budgeting techniques is that they take into consideration the time value or money while evaluating the Cost sand benefits of a project, I none fond or another, all these methods require cash-flows to be discounted at a certain rate, that is, the cost of capital. The cost or capital (K) is the minimum discount rate earned on a project that leaves the ‘market value unchanged. The second commendable feature or these techniques is that they take into account aU benefits and costs occurring during the entire life of the project. In the discussions that follow, we have attempted to discuss the DCF evaluation methods. First, we have explained the general procedure behind DCF. This is followed by a discussion of the first DCF technique, namely, net present value (NPV), We have then covered the internal rate or return (IRR) method. The two variations of the NPV method, that is, terminal value and profitability (PI) or benefit-cost ratio are also discussed. An attempt has also been made to compare  NPV method with IRR and the PI.

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