Turn on thread page Beta
    • Thread Starter
    Offline

    2
    ReputationRep:
    I need some help with my essay im doing.. here's what i've done:

    URL = http://img527.imageshack.us/my.php?image=npv3hm1.png

    [IMG][/IMG]

    Did I do it right?

    - Is NPV an annual thing? or is me doing it monthly correct? (because the 8 months is significant)
    - The NPV i stated at the end.. is that correct [the way i stated it]? (was obtained by 39575+(-30000)

    anything else wrong with it?
    • Thread Starter
    Offline

    2
    ReputationRep:
    I can't seem to upload the pic.. hmm
    Offline

    0
    ReputationRep:
    Its uploaded fine - what was the original question?
    • Thread Starter
    Offline

    2
    ReputationRep:
    Did I do it right?

    - Is NPV an annual thing? or is me doing it monthly correct? (because the 8 months is significant)
    - The NPV i stated at the end.. is that correct [the way i stated it]? (was obtained by 39575+(-30000)

    anything else wrong with it?
    Offline

    2
    ReputationRep:
    Yeah, the calculation seems to be right. Usually it's yearly, but there's nothing wrong with letting 1 month be the unit of time in this case.

    Yup, it looks fine. On paper it'd be like:

    NPV = - Inlay (initial at t=0 implies no discounting) + Outlay
    NPV = -C0 + A(V + V^2 + ... + V^n)
    NPV = -C0 + A[1/1+i + 1/(1+i)^2 + ... + 1/(1+i)^n]
    NPV = -30,000 + 6000(0.957 + 0.916 + ... + 0.703)

    Using 1/1+i = 0.967, I can deduce that interest rate i = 0.044932097

    [1/1+i + 1/(1+i)^2 + ... + 1/(1+i)^n] can actually be simplied to a term "a(n)", known as an" immediate annuity", made in arrear.

    Sorry for blabbering on! It's just I have a mid-term for financial maths tomorrow, so I'm trying to spit out anything vaguely relevant to your original question



    (Original post by G O D I V A)
    I need some help with my essay im doing.. here's what i've done:



    Did I do it right?

    - Is NPV an annual thing? or is me doing it monthly correct? (because the 8 months is significant)
    - The NPV i stated at the end.. is that correct [the way i stated it]? (was obtained by 39575+(-30000)

    anything else wrong with it?
    Offline

    1
    ReputationRep:
    I'd say it was unlikely that after 8 months the discount factor would be 0.7 unless the project is extremely risky. Currently the monthly interest rate is 4.5%. That equates to ((1.045)^12-1) = 70% annual interest, which seems pretty high. I can't be sure, as I don't have the question, but I'd say that they expect an annual rate of 4.5% which gives approximately 4.5%/12 = 0.0375% per month interest rate. Then use that to discount the monthly cash flows rather than 4.5%.
 
 
 

1,880

students online now

800,000+

Exam discussions

Find your exam discussion here

Poll
Should predicted grades be removed from the uni application process

The Student Room, Get Revising and Marked by Teachers are trading names of The Student Room Group Ltd.

Register Number: 04666380 (England and Wales), VAT No. 806 8067 22 Registered Office: International House, Queens Road, Brighton, BN1 3XE

Write a reply...
Reply
Hide
Reputation gems: You get these gems as you gain rep from other members for making good contributions and giving helpful advice.