Find in the following further explanations regarding the calculations in the assignment.
Identify the company’s annual cash flows over the past 5 years as per its cash flow statement. Take the absolute values of these cash flows, i.e., if any of these cash flows is negative, make it positive.
Assuming that this cash flow pattern will occur in the future, i.e. during the coming 5 years, calculate the present value of those cash flows. The discount rate to be used to discount the cash flow should be computed as follows: r = Risk free rate + beta * Equity Risk Premium , where the risk free rate is the ten-year UK Treasury
bond rate; beta can be obtained from Yahoo Finance; and the equity risk premium is 5.31% for the UK. If the company is offered an investment opportunity with an initial outlay representing 84% of the total five cash flows you identified in Question 3, would you accept this investment opportunity using the NPV, the IRR and the payback period rules?
