6 SUMMARY three-sep pr cash flows Dicount he project's FOF ing the W The main focus of this chapter is on knilying snd forecistiang the inremencal revenees and costs Cai are roquired so estimate expecied cash owsAlthagh cah fre ailitysis is key elemcns ir. investment valuation, the proce used-omsake sorucasts necemarily subjective and traught with potential extimation enors Conequcntly cad low forecasting is part ant and part science. This does rot me an that the analyst should simply throw caution to the wind and engage in crystal baill caring Good fonecasing s grounded in sound eooncemc analysis and riga atlention to the details ef proper cah ls flow definition Key learning poirts from this chapicr are that forccasting is hard work and in subject to potertially very arge errors. To minimize the effect ol thee loeccant esocs good analysts follow a theee-prongod approach: First, they take the torccasting probicm very seriously and utilize all the irformation and sechnology they have at theit disposal to arrive at their foreeast Scooed, as we will discuss in Chapter 3, they do post-forecast risk analysis, which belps them preparc for a wide range of posable outoomes Third, to the extent possible, they try to maintain Eexibliy in how the inves.ent is impicmemed so that they can respond to unforessen future events, We wll have more to say aboun this latter point in Chapters 3 and 1: 2 CALCULATING PRESENT VALUES Cakculase the present valuc of each of the tollowing cash flow streams Use a discount rate of 10%. a. $500 reccived at the end of tive years b. $500 received snnually for each of the nexi five years c. $500 received annually for each of the noxt fifty years d. $500 received annualy for 100 years 22 CALCULATING THE NTERNAL RATE OF RETURw Singular Construction is evaluating whether to build a new distribution facility The proposed investmeni will cost Singalar