Abstract
In the capital budgeting and decision-making process for any engineering or financial project, it is important to understand the concepts of Present Value (PV), Future Value (FV), and interest. This chapter presents cash flow diagram, which is an important tool to help understand an investment project and the timing of its cash flows, and help with calculating its PV or FV. Many investments and financial projects have multiple, periodic, and irregular cash flows. A cash flow diagram helps in understanding the cash flows and with their analysis. The value of the investment or project may then be found by discounting the cash flows to determine their present value. No matter how complex a financial project or investment is, the cash flows can always be diagrammed and split apart into separate cash flows if necessary. Using the Discounted Cash Flow (DCF) formula, each cash flow can be discounted individually back to time zero to obtain PV, and then summed to determine the overall valuation of the project or investment.
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