NPV - Revision history

Paulreed at 21:19, 3 September 2012

2012-09-03T21:19:38Z

← Older revision		Revision as of 15:19, 3 September 2012
Line 4:		Line 4:

	{\| class="wikitable " border="1" cellpadding="5" cellspacing="0" align="center"		{\| class="wikitable " border="1" cellpadding="5" cellspacing="0" align="center"
	\|+ NPV with Discount Factor 15%'''		\|+ NPV with Discount Factor 15% (1/(1+.15)t)'''
	\|-		\|-

Paulreed at 20:54, 3 September 2012

2012-09-03T20:54:17Z

← Older revision		Revision as of 14:54, 3 September 2012
Line 3:		Line 3:
	example		example

	{\| class="wikitable ~~sortable~~" border="1" cellpadding="5" cellspacing="0" align="center"		{\| class="wikitable " border="1" cellpadding="5" cellspacing="0" align="center"
	\|+ NPV with Discount Factor 15%'''		\|+ NPV with Discount Factor 15%'''
	\|-		\|-
Line 25:		Line 25:
	\|		\|
	\|		\|
	\|(101.32		\|(101.32)

	\|-		\|-
	\|}		\|}

Paulreed at 20:53, 3 September 2012

2012-09-03T20:53:46Z

← Older revision		Revision as of 14:53, 3 September 2012
Line 29:		Line 29:
	\|-		\|-
	\|}		\|}

	~~...............................................DF 15%~~
	~~Investment Yr 0 (150).....................1......................(150)~~
	~~Year 1 CF 30.....................0.87......................26~~
	~~Year 2 CF 30....................0.756.....................22.68~~
	~~NPV (101.32)~~

	Good because it		Good because it

Paulreed at 20:53, 3 September 2012

2012-09-03T20:53:03Z

@@ Line 1: / Line 1: @@
 Net Present Value (NPV) discounts the cash flow by the cost of capital
 The cost of capital includes interest foregone, inflation, the risk premium of the investment
 example
 ...............................................DF 15%
 Investment Yr 0 (150).....................1......................(150)

Paulreed: /* 1 Lowest Common Multiple Method */

2012-09-03T20:40:49Z

1 Lowest Common Multiple Method

← Older revision		Revision as of 14:40, 3 September 2012
Line 24:		Line 24:
	===NPV2===		===NPV2===
	Evaluation of projects with unequal lives		Evaluation of projects with unequal lives
	====1 Lowest Common Multiple Method====		====1 Lowest Common Multiple Method (LCM)====
	Extend the projects' life to the same number of years. A 2 and 3 year project is 6 years~~. A~~ 2,3 and 4 year project is 12 years using the normal NPV methods see [[NPV]]		Extend the projects' life to the same number of years. For instance a 2 and 3 year project is extended 6 years and 2,3 and 4 year project is extended to 12 years using the normal NPV methods see [[NPV]]
	* Good for comparing like for like for projects with different lives		* Good for comparing like for like for projects with different lives
	* Cumbersome if LCM goes ~~ovr~~ 6 years		* Cumbersome if LCM goes over 6 years
	* No good if the life of the project is less then the LCM		* No good if the life of the project is less then the LCM

Paulreed at 20:37, 3 September 2012

2012-09-03T20:37:48Z

← Older revision		Revision as of 14:37, 3 September 2012
Line 1:		Line 1:
	~~Discounts~~ the cash flow by the cost of capital
			Net Present Value (NPV) discounts the cash flow by the cost of capital
	The cost of capital includes interest foregone, inflation, the risk premium of the investment		The cost of capital includes interest foregone, inflation, the risk premium of the investment
	example		example

Paulreed at 20:36, 3 September 2012

2012-09-03T20:36:44Z

← Older revision		Revision as of 14:36, 3 September 2012
Line 23:		Line 23:
	===NPV2===		===NPV2===
	Evaluation of projects with unequal lives		Evaluation of projects with unequal lives
	1 Lowest Common Multiple Method		====1 Lowest Common Multiple Method====
	Extend the projects' life to the same number of years. A 2 and 3 year project is 6 years. A 2,3 ~~and4~~ year project is 12 years using the normal NPV methods see [[NPV]]		Extend the projects' life to the same number of years. A 2 and 3 year project is 6 years. A 2,3 and 4 year project is 12 years using the normal NPV methods see [[NPV]]
	* Good for comparing like for like for projects with different lives		* Good for comparing like for like for projects with different lives
	* Cumbersome if LCM goes ovr 6 years		* Cumbersome if LCM goes ovr 6 years
	* No good if the life of the project is less then the LCM		* No good if the life of the project is less then the LCM

	2. Equivalent Annual Cash Flow		====2. Equivalent Annual Cash Flow====
	Divide the sum of the NPV's by the sum of the discount factors (annuity)		Divide the sum of the NPV's by the sum of the discount factors (annuity)
	So after 1 year is the NPV is 46 and DC is 0.885 = 51		So after 1 year is the NPV is 46 and DC is 0.885 = 51

Paulreed at 00:30, 1 May 2012

2012-05-01T00:30:37Z

← Older revision		Revision as of 18:30, 30 April 2012
Line 38:		Line 38:
	Assumes that the project will end before the life of the asset. Add the terminal values to that year		Assumes that the project will end before the life of the asset. Add the terminal values to that year

			See also [[Capital Rationing]]
	[[Category:Finance]]		[[Category:Finance]]

Paulreed at 13:46, 24 December 2010

2010-12-24T13:46:13Z

@@ Line 19: / Line 19: @@
 [[ARR]] [[IRR]] [[Payback]]
-[[Annuity Tables]] can only be used if the constant
+[[Annuity Tables]] can only be used if the constant.
 [[Category:Finance]]

Paulreed: Created page with "Discounts the cash flow by the cost of capital The cost of capital includes interest foregone, inflation, the risk premium of the investment example ................................"

2010-12-24T13:45:29Z

Created page with "Discounts the cash flow by the cost of capital The cost of capital includes interest foregone, inflation, the risk premium of the investment example ................................"

New page

Discounts the cash flow by the cost of capital
The cost of capital includes interest foregone, inflation, the risk premium of the investment
example
...............................................DF 15%
Investment Yr 0 (150).....................1......................(150)
Year 1 CF 30.....................0.87......................26
Year 2 CF 30....................0.756.....................22.68
NPV (101.32)

Good because it
* Includes all cash flows
* takes in to account the timing of cash flows
* looks at actual cask not a percentage unlike [[IRR]]
* Deals with risk
* Deals with Opportunity Costs
* Any positive NPV is accepted

[[ARR]] [[IRR]] [[Payback]]

[[Annuity Tables]] can only be used if the constant

[[Category:Finance]]