| NPV = |
i=n
Σ i=1 |
A
i (1+r)
i |
- C |
|
where Ai is the net cash flow at the end of year i, the project has a
life of n years, r is the cost of capital, and C is the capital expen- diture. This technique is used commercially to determine the probable viability of a proposed project - if the net present value is positive then the project is viable, if negative then it is not - but in the Church's case it would seem to have most potential value when comparing projects for churches expected to have differing periods of useful service. 2.6.2.3 Yield
We can now develop further into a technique known as the Yield method, one variant of which - Discounted Cash Flow - is currently much. favoured by practising accountants. This method takes all the cash flows used for Net Present Value and then calculates the rate of inte- rest which would equate them to the outflow(s) (i.e. in the Church's case the net cost of constructing the new building). If that rate is below the rate of interest incurred in making the necessary capital available then the project is deemed viable, if greater, then not viable. Again, in the Church's case it would seem to offer a more refined way of deciding between several proposed projects where not all can be tackled at once. The calculation is made by solving for r in the formula: |
| C = |
i=n
Σ i=1 |
A
i (1+r)
i |
|
where the symbols are as previously defined.
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