FINANCIAL PLANNING PROFESSIONAL ENGLISH IN USE FOR FINANCE

 

PROFESSIONAL ENGLISH IN USE FOR FINANCE 41. FINANCIAL PLANNING

 

A Financing new investments Alia Rahal works in the financial planning department of a large manufacturing company: B Discounted cash flows ‘We usually calculate the discounted cash flow value of an investment. This means discounting or reducing future cash flows to get their present values – in other words, calculating the present value of money to be received in the future. This is because the value of money decreases over time. C Comparing investment returns ‘If we have to choose among possible investments in new projects, we work out the net present value (NPV) of each project by adding up all the expected cash flows, discounted to their present value, minus the initial investment. To do this, we have to select a discount rate or capitalization rate. This is usually the interest rate we pay for borrowing the capital, but we could increase it if there’s a lot of uncertainty or risk. EXERCISES 41.1 Match the words in the box with the definitions below. Look at A, B and C opposite to help you. discount rate discounted cash flow internal rate of return purchasing power rate of return time value of money 1 a series of future earnings converted to their value today 2 the annual percentage amount of income received from an investment 41.2 Are the following statements true or false? Find reasons for your answers in A and B opposite. 1 If a company uses its own money for a new project, there is no opportunity cost of capital 2 A project financed by borrowed money requires a rate of return higher than the cost of capital 41.3 Match the two parts of the sentences. Look at A, and B to help you. 1 Future cash flows are usually discouraged 2 If a project seems to be particularly risky or uncertain

 

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