In the next couple of posts, I'll try to elaborate more on the approach I'm using to calculate NPV's. I don't claim being an expert, just sharing what I understand from it and hope it can help interested people to learn more about this concept. First let's start with the basics.
1) You need a calculator. I found this one was pretty easy to use.
https://www.calculatorsoup.com/calculators/financial/present-value-cash-flows-calculator.php
2) You need to understand the different parameters
- Interest rate: value that money loses for each year that passes (8% in our case)
- Compounding: number of periods in a year where the interest is compounded (assuming 2 periods in our case)
- Cash flow: amount of money in and out of the business
3) For Schaft Creek (100%), see below the approximate stream of net cash flows (in millions) based on the 2013 FS.
|
Year -5: -100
|
Year 1: -225
|
Year 6: 725
|
Year 11: 50
|
Year 16: 25
|
|
Year -4: -300
|
Year 2: 800
|
Year 7: 625
|
Year 12: 200
|
Year 17: 400
|
|
Year -3: -1000
|
Year 3: 650
|
Year 8: 525
|
Year 13: 425
|
Year 18: 675
|
|
Year -2: -1000
|
Year 4: 475
|
Year 9: 425
|
Year 14: 575
|
Year 19: 800
|
|
Year -1: -825
|
Year 5: 575
|
Year 10: 250
|
Year 15: 225
|
Year 20: 900
|
|
|
|
|
|
Year 21: 325
|
4) Entering all these values in the calculator should give you a NPV (8%) around 520M.
Conclusion: The 2013 FS had a positive result of 513M, so the assumptions used above provide good enough results for the purpose of the exercise.
IMO.
MoneyK
