Net present value/Tutorials: Difference between revisions

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The '''net 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>
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*<math>t</math> is the time of the cash flow <br>
*<math>t</math> is the time of the cash flow <br>
*<math>r</math> is the [[discount rate]] <br>
*<math>r</math> is the investor's [[discount rate]] <br>
*<math>C_t</math> is the net cash flow (the amount of cash) in year t  <br>
*<math>C_t</math> is the cash flow (the inflow  of cash) in year t  <br>
 
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.





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Tutorials relating to the topic of 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

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.


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: