DCF / NPV Modelling

[Punisher007]

Hey guys,

I needed some clarification on modelling cashflows for a project's NPV. Basically, I have a project with an in initial investment (year 0) with income stream beginning in year 2 and continuting for 25 years. When discounting the cashflows, is it better to use EBITDA or Net Income. I was reading that NPV should not include interest expense, as the discount rate should reflect the cost of borrowing.

Thanks.

 

[themadauditor]

Net income isn't a cash flow, it's an accrual number. wouldn't make any sense to discount it.

 

[pka]

Net income measures profitability, not cash flow. EBITDA is also a profitability metric and is sometimes used as a proxy for cash flow, but it isn't a good one because it doesn't account for important stuff like working capital requirements and capex. Try free cash flow.