Net present value/Tutorials: Difference between revisions

From Citizendium
Jump to navigation Jump to search
imported>Nick Gardner
No edit summary
imported>Nick Gardner
No edit summary
Line 1: Line 1:
{{subpages}}
{{subpages}}
 
==Net present value==
The '''present value''' of an investment generating cash flows C during n  years is given by:
The present value of an investment generating cash flows C during n  years is given by:


::::<math>\mbox{V} = \sum_{t=1}^{n} \frac{C_t}{(1+r)^{t}}</math>
::::<math>\mbox{V} = \sum_{t=1}^{n} \frac{C_t}{(1+r)^{t}}</math>
Line 13: Line 13:
Tabulations of the factors to be applied each year at specified discount rates are to be found in many reference books [http://www.netmba.com/finance/time-value/present/].
Tabulations of the factors to be applied each year at specified discount rates are to be found in many reference books [http://www.netmba.com/finance/time-value/present/].


Present value becomes '''net present value''' when C is taken to be the '''''net''''' cash inflow after allowing for outflows at the time of purchase of an asset or during the launch phase of a project.
Present value becomes net present value when C is taken to be the net cash inflow after allowing for outflows at the time of purchase of an asset or during the launch phase of a project.
   
   






==Net present expected value==


 
The net present expected value, E of a project having a probability P of a single outcome whose net present value is V is given by:
The '''net present expected value''', E of a project having a probability P of a single outcome whose net present value is V is given by:


::::E&nbsp;=&nbsp;PV
::::E&nbsp;=&nbsp;PV

Revision as of 01:22, 10 July 2010

This article is a stub and thus not approved.
Main Article
Discussion
Related Articles  [?]
Bibliography  [?]
External Links  [?]
Citable Version  [?]
Tutorials [?]
 
Tutorials relating to the topic of Net present value.

Net present value

The present value of an investment generating cash flows C during n years is given by:

Where

  • is the time of the cash flow
  • is the investor's discount rate
  • is the cash flow (the inflow of cash) in year t

Tabulations of the factors to be applied each year at specified discount rates are to be found in many reference books [1].

Present value becomes net present value when C is taken to be the net cash inflow after allowing for outflows at the time of purchase of an asset or during the launch phase of a project.



Net present expected value

The net present expected value, E of a project having a probability P of a single outcome whose net present value is V is given by:

E = PV

Where there are multiple possible outcomes y = 1 ...n with probabilities Py and present values Vy,

then the net present expected value is given by: