From the course: Finance Foundations: Business Valuation

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Use discounted cash flow on a car purchase

Use discounted cash flow on a car purchase

From the course: Finance Foundations: Business Valuation

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Use discounted cash flow on a car purchase

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- Now, you and your family moved to Hong Kong in 1995. - We did, we lived there for three years. - So, did you buy a car while you were there? - No, but we actually did some financial analysis to determine whether we should buy a car. - So what kind of analysis? - Basically, we did a discounted cashflow analysis, or DCF. We forecasted the amount and timing of cashflows, use an interest rate and estimate of what a car would be worth to us. - So I bet that was a fun family meeting. Tell us what the numbers told you. - Okay, well, I'll convert all numbers to U.S. dollars, but of course, the original analysis was in Hong Kong dollars. So we estimated that we would receive about $1,300 in net annual savings in terms of our high spending on public transportation costs compared to the lower cost of operating an automobile, the gas, the oil, the maintenance, and so forth. - You must've been spending a lot on public transportation.…

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