Quantitative Methods

Discounted Cash Flow Applications

**time value of money concept**. In this post we take the concept forward to learn how cash flows discounted over time to the present value are used to reach decisions about viability of projects through the NPV and IRR decision rules.

**NPV (Net Present value) decision rule **

** IRR (Internal Rate of return) rule**

## Opportunity cost

Opportunity cost is the cost of losing out or giving up on one investment avenue to invest in another avenue, i.e., if I have limited funds and I can invest in either government bonds at 6% or invest in a project, and I choose to invest in the project then in that case I cannot invest in the government bonds and have to give up the chance of earning 6% interest on them. This becomes my opportunity cost. So when I invest in the project I expect to earn a minimum return of 6%.

**Money weighted and Time weighted rate of return:**

**basic statistical concepts**….

**For solved examples please refer to the CFA Institute Books and CFA study notes. The problems can be easily solved using the CFA institute approved financial calculators. Please refer to the CFA exam policy and CFA calculator guide.**

[…] concepts (Part 2) Probability concepts (Part 1) Statistical concepts and market returns Discounted cash flow applications […]