Hi there,

Several questions ;) Let me go one by one.

__1) NPV__

The correct **NPV** formula closer to what you reported is:

*NPV = -Initial Investment + (FCF/Discount Rate) *

Where FCF= Free cash flow of the project generated in one year (I guess that’s what you mean by Future Value of Money). Note that this formula assumes that (i) every year you will generate the same FCF and (ii) you will generate FCF forever with that project.

__2) RULE OF 72__

With the **Rule of 72** you can calculate the time to double for a variable. The formula is:

*Time to double = 72/r*

Where r=discount rate*100 (so if the discount rate is say 15%, r=15).

__3) WACC__

From a theoretical point of view, the discount rate is normally approximated with the **WACC **of the company (Weighted Average Cost of Capital), which can be computed as follows:

*WACC = Re x E/V + Rd x (1 - corporate tax rate) x D/V.*

where:

*Re= Cost of Equity*

*Rd= Cost of Debt*

*E= Equity*

*D= Debt*

*V= Total Value (E+D)*

In practical terms, this is normally assumed to be 5% or 10% for simplicity in a case.

__4) CASE QUESTION__

I guess what they meant was that profits, not revenues, are going to be received in 6 years.

Given the WACC is 12%, if you apply the rule of 72 using the WACC as the discount rate, you will find that the returns of the project will double indeed in exactly 6 years (72/12=6 – see formula above).

So this means that if you have X in year zero and grow by 12% per year, this will be worth 2X in 6 years. Given in this case you have 354M in 6 years, 354M = 2X, so X (value today of that return) is 177M.

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For more information on the other variables, you can refer to the following answer that goes more into detail:

https://www.preplounge.com/en/consulting-forum/case-net-present-value-calculations-325

Hope this helps,

Francesco