DECISION TAKEN

Abstract

Discounted cash flow (DCF) is a technique for measuring whether future earnings from a project are worth the capital investment required to acquire them. Future earnings have, over the life of a project, to pay back the invested capital and also to pay interest on the outstanding capital at any time. The rate of interest which the future earnings are capable of paying on the capital invested is a measure of the profitability of the project and is called the DCF rate of return. The minimum acceptable DCF return is, of course, the rate of interest which the company has itself to pay for its capital. Thus DCF methods supply a sound means of separating sheep projects from goat projects. Most large U.K. companies now use DCF methods for project appraisal, but Courtaulds was one of the first to appreciate its use and is still one of the few to make DCF analysis obligatory for all projects submitted to the board. In this article, A. M. Alfred, chief economist of Courtaulds and one of those most involved in Implementing DCF techniques within his company, answers questions on why Courtaulds introduced the technique and what has been achieved by it.

Citation

ALFRED, A.M. (1967), "DECISION TAKEN", Management Decision, Vol. 1 No. 2, pp. 43-46. https://doi.org/10.1108/eb000788