Net Present Value [NPV] [HELP?]

One formula which is really getting on my nerves. . has some weird formula that doesn't make any sense to me.

Tried researching for some good examples so i could get a better understanding but coudn't find anything.

I would be greatful, if you could post the formula and a appropriate example to explain how i would work it out in exam

Thanks!

Reply 1

Spinal

2

There isn't so much a formula to it, it's more of a method. I'll use an example out of a text book since I'm too lazy to make my own:

(as you can see from the table, annual cash flows x discount factors = present value and the sum of all present values over the 5 year period = net present value)

In this case, proposal A (the cheaper option) has a higher net present value than that of proposal B. Therefore it would be preferred. However, non-financial information may affect the investment decision.

Reply 2

3ak16

OP

Dude i love you!

thanks alot- much easier than i thought

Reply 3

CM Punk

is that from the black a2 business studies book? im using that for revision. its all concise and everthing which is good

Adonis

There isn't so much a formula to it, it's more of a method. I'll use an example out of a text book since I'm too lazy to make my own:

(as you can see from the table, annual cash flows x discount factors = present value and the sum of all present values over the 5 year period = net present value)

In this case, proposal A (the cheaper option) has a higher net present value than that of proposal B. Therefore it would be preferred. However, non-financial information may affect the investment decision.

Reply 4

Spinal

2

CM Punk

is that from the black a2 business studies book? im using that for revision. its all concise and everthing which is good

Nope it's green and by Malcolm Surridge.

Reply 5

jvhc

Old thread, but I'm a bit confused on this.

How is the net present value worked out at the end?

For 'Proposal A', in the table it says it's NPV is £16,028. It also says that NPV is the sum of all the present values over the 5 year period. But if I add up the present values from years 1-5, I get £228,028. I thought maybe you divide it by the sum of all the discount factors (3.79), but that just gives £60,165.

??

edit, got it now :smile:

Reply 6

2710

18

Original post by Spinal

There isn't so much a formula to it, it's more of a method. I'll use an example out of a text book since I'm too lazy to make my own:

x

Right I know this is an old thread, but I didn't want to start a new one.

nvm.

(edited 11 years ago)

Net Present Value [NPV] [HELP?]

Related discussions

Articles for you