Net Present Value

NPV stands for what?

• Net Present Value

• Net Profit Value

• Not Present Value

• Nice Present Value

What is the first step in working out the NPV?

• Draw a table & label Net Cash Flow, Discount Factor, Discounted Net Cash Flow

• Multiply the Net Cash Flow by the correct discount factor

• Add up all the discounted net cash flows and then minus off the initial cost

• Advise the investment to proceed if the NPV is positive

What is the second step in working out the NPV?

• Draw a table & label Net Cash Flow, Discount Factor, Discounted Net Cash Flow

• Multiply the Net Cash Flow by the correct discount factor

• Add up all the discounted net cash flows and then minus off the initial cost

• Advise the investment to proceed if the NPV is positive

What is the third step in working out the NPV?

• Draw a table & label Net Cash Flow, Discount Factor, Discounted Net Cash Flow

• Multiply the Net Cash Flow by the correct discount factor

• Add up all the discounted net cash flows and then minus off the initial cost

• Advise the investment to proceed if the NPV is positive

What is the fourth step in working out the NPV?

• Draw a table & label Net Cash Flow, Discount Factor, Discounted Net Cash Flow

• Multiply the Net Cash Flow by the correct discount factor

• Add up all the discounted net cash flows and then minus off the initial cost

• Advise the investment to proceed if the NPV is positive

What does the time value of money mean?

• The idea that a £ today is worth more than a £ in the future

• The idea that a £ today is worth less than a £ in the future

• The value of time in monetary terms

• How much time is takes to earn an investment back

What is the theory behind "the time value of money"?

• The £ received today can earn interest up until the £ in the future is received

• The £ received today can lose interest up until the £ in the future is received

• There is risk involved in predicting future Net Cash Flows

• The idea that time is priceless and we should all live in the present

Takes account of time value of money, placing emphasis on earlier cash flows

• Advantage

• Disadvantage

Looks at all the cash flows involved through the life of the project

• Advantage

• Disadvantage

Use of discounting reduces the impact of long-term, less likely cash flows

• Advantage

• Disadvantage