Copyright © Philip M. Parker, INSEAD. Terms of Use.
| Domain | Definition |
Energy | The value of a personal portfolio, product, or investment after depreciation and interest on debt capital are subtracted from operating income. It can also be thought of as the equivalent worth of all cash flows relative to a base point called the present. (references) |
Source: compiled by the editor from various references; see credits. | |
(From Wikipedia, the free Encyclopedia)
For example: X corporation during capital budgeting is trying to decide whether or not to proceed with a new product line. The new product will have startup costs, operational costs, and incoming cash flows increasing over time.
X corporation's CFO has declared that all new projects must have an NPV of more than zero and an internal rate of return of more than the weighted average cost of capital. Which just means that the project must pay the company back within five years, and must return more than its normal short-term (money market) rate of return. The weighted average cost of capital is 10% per annum (year).
This project will have a cash outlay (up-front cost to purchase machinery and train employees) of $100,000, and the personnel and maintenance costs will be $5,000 per year. It will return nothing the first year, but is projected to earn $31,250 per year after that.
The NPV is calculated for each cash flow:
$-100,000 today = $-100,000 / 1.10^0 = $-100,000.Then all of the discounted (current) values are added together to find the NPV:$-5,000 today = $-5,000 / 1.10^0 = $-5,000.
$-5,000 in 1 yr = $-5000 / 1.10^1 = $-4,545.45
$-5,000 in 2 yr = $-5000 / 1.10^2 = $-4,132.23
$-5,000 in 3 yr = $-5000 / 1.10^3 = $-3,756.57
$-5,000 in 4 yr = $-5000 / 1.10^4 = $-3,415.07
$31,250 in 1 yr = $31,250 / 1.10^1 = $28,409.09
$31,250 in 2 yr = $31,250 / 1.10^2 = $25,826.45
$31,250 in 3 yr = $31,250 / 1.10^3 = $23,478.59
$31,250 in 4 yr = $31,250 / 1.10^4 = $21,344.17
-100,000.00 - 5,000.00 - 4,545.45 - 4,132.23 - 3,756.57 - 3,415.07 28,409.09 25,826.45 23,478.59 21,344.17 ----------- -21,791.02(About the time I learned this, was about the time I decided spreadsheets aren't so bad after all.)
If you add up the original cash flows without discounting them, you find that the money spent is entirely bought back. This particular example is why discounted cash flow methods of valuation are superior to ones not based on time value of money.
Source: adapted by the editor from Wikipedia, the free encyclopedia under a copyleft GNU Free Documentation License (GFDL) from the article "Net present value."
| Subject | Topic | Quote |
Health | Using a 3 percent discount rate, this implies a net present value of approximately $800,000 for direct and ancillary costs associated with a CF birth. (references) | |
Economic History | Guyana | As a result, Guyana qualified for debt relief of about US$256M in net present value (NPV) terms, or US$437M over 20 years. (references) |
Bangladesh | Because virtually all of the country's outstanding external debt has been granted on highly concessionary terms (e.g., 1.0-2.0% interest, 40-year maturity, and a 10-year grace period) by donor nations and multilateral lending institutions, the net present value of the debt is far lower than the face value. (references) | |
Mozambique | The year 2000's per capita GDP is estimated to have increased to $222; in the mid-1980s, it was $120. With a high foreign debt (originally $5.7 billion at 1998 net present value) and a good track record on economic reform, Mozambique was the second African country to receive debt relief under the HIPC (Heavily Indebted Poor Country) Initiative. (references) | |
Political Economy | EGYPT | In the early 1990's, official creditors in the Paris Club agreed to reduce by 50 percent the net present value of Egypt's official debt in three tranches of 15, 15 and 20 percent. (references) |
BANGLADESH | Assessed on the basis of disbursed outstanding principal, Bangladesh's external public debt was $15.8 billion in fiscal year 2001, an 11 percent rise from fiscal year 2000. Because virtually all of the debt was provided on highly concessional terms by bilateral and multilateral donors, the net present value of the total outstanding debt is significantly lower than its face value. (references) | |
Source: compiled by the editor from ICON Group International, Inc.; see credits. | ||
| The following statistics estimate the number of searches per day across the major English-language search engines as identified by various trade publications. Hyperlinks lead to commercial use of the expression at Amazon.com. |
Scrabble® Enable2K-Verified Anagrams | |
| Words within the letters "a-e-e-e-e-l-n-n-p-r-s-t-t-u-v" | |
-3 letters: superelevate. | |
-4 letters: antepenults, terneplates. | |
-5 letters: antepenult, epaulettes, eventuates, penetrants, penetrates, perennates, prevalents, terneplate. | |
| Source: compiled by the editor from various references; see credits. SCRABBLE® is a registered trademark. All intellectual property rights in and to the game are owned in the U.S.A and Canada by Hasbro Inc., and throughout the rest of the world by J.W. Spear & Sons Limited of Maidenhead, Berkshire, England, a subsidiary of Mattel Inc. Mattel and Spear are not affiliated with Hasbro. | |
Hexadecimal (or equivalents, 770AD-1900s) (references)4E 45 54 50 52 45 53 45 4E 54 56 41 4C 55 45 |
| Leonardo da Vinci (1452-1519; backwards) (references)
|
Binary Code (1918-1938, probably earlier) (references)01001110 01000101 01010100 00100000 01010000 01010010 01000101 01010011 01000101 01001110 01010100 00100000 01010110 01000001 01001100 01010101 01000101 |
HTML Code (1990) (references)N E T   P R E S E N T   V A L U E |
ISO 10646 (1991-1993) (references)004E 0045 0054 0050 0052 0045 0053 0045 004E 0054 0056 0041 004C 0055 0045 |
Encryption (beginner's substitution cypher): (references)48395425052395339485425635465539 |
| 1. Quotations: Non-fiction 2. Expressions: Internet 3. Anagrams 4. Orthography | 5. Bibliography |
Copyright © Philip M. Parker, INSEAD. Terms of Use.
