JoVE Logo

Zaloguj się

7.10 : Net Present Value Method

The Net Present Value (NPV) method is a financial technique used to assess the profitability of an investment or project by comparing the present value of future cash inflows to the initial investment. The formula for NPV is:

Equation 1

Where:

  1. R_t represents the net cash inflows expected in the future.
  2. i is the discount rate, reflecting money's risk and time value.
  3. t is the time period when the cash flow occurs.
  4. C_0 is the initial investment or cost required for the project.

This formula sums the present value of all future cash inflows and subtracts the initial investment, yielding the NPV, which can be positive, zero, or negative. A positive NPV indicates profitability, while a negative NPV suggests the investment may not be financially viable.

When calculating NPV, it's essential to remember that the process of discounting cash flows is straightforward once the cash flows and discount rate are known. However, the real challenge lies in accurately estimating those cash flows and the appropriate discount rate. As these are only estimates, the actual NPV may vary, emphasizing the importance of making reliable projections.

Tagi

Net Present ValueNPV MethodFinancial TechniqueCash InflowsInitial InvestmentDiscount RateTime Value Of MoneyProfitability AssessmentCash Flow EstimationInvestment Viability

Z rozdziału 7:

article

Now Playing

7.10 : Net Present Value Method

Capital Budgeting

211 Wyświetleń

article

7.1 : Introduction to Capital Budgeting

Capital Budgeting

298 Wyświetleń

article

7.2 : Basics of Investment Decision-making

Capital Budgeting

177 Wyświetleń

article

7.3 : Importance of Capital Budgeting

Capital Budgeting

148 Wyświetleń

article

7.4 : Advantages and Limitations of Capital Budgeting

Capital Budgeting

431 Wyświetleń

article

7.5 : Capital Budgeting Techniques

Capital Budgeting

187 Wyświetleń

article

7.6 : Payback

Capital Budgeting

114 Wyświetleń

article

7.7 : Payback Period

Capital Budgeting

89 Wyświetleń

article

7.8 : Discounted Payback Period

Capital Budgeting

95 Wyświetleń

article

7.9 : Net Present Value

Capital Budgeting

323 Wyświetleń

article

7.11 : Decision-making Through Net Present Value

Capital Budgeting

94 Wyświetleń

article

7.12 : Internal Rate of Return

Capital Budgeting

207 Wyświetleń

article

7.13 : Calculating Internal Rate of Return

Capital Budgeting

75 Wyświetleń

article

7.14 : Decision-making Through Internal Rate of Return

Capital Budgeting

81 Wyświetleń

article

7.15 : Average Rate of Return

Capital Budgeting

93 Wyświetleń

See More

JoVE Logo

Prywatność

Warunki Korzystania

Zasady

Badania

Edukacja

O JoVE

Copyright © 2025 MyJoVE Corporation. Wszelkie prawa zastrzeżone