NPV?
..................................... ......................................................................
Trending Content - Off Topic Forum
| +102 | KISSED MY VP… HELP!!! | 16 | 21h |
| +27 | How expensive is SF? | 14 | 3d |
| +9 | Morning or evening for gym time? | 11 | 14h |
| 0 | What is a tool that you wish you had and would use every day? | 3 | 2d |
Career Resources
By table, I'm guessing you're referring to the discount rates?
As you know, NPV = (Sum of (cashflows year t) * (discount rate year t) from year t = 1 to N ) + Initial investment
The discount rates are 1 / (1 + discount rate )^t
The table is just a look-up table for those discount rates. On one axis you have years/time periods, on the other discount rate.
Let's say you have the following data:
Initial investment = -20
CF(t=1) = 10
CF(t=2) = 20
CF(t=3) = 30
And with different discount rates
r(t=1,2,3) = 5%
Your NPV is then
NPV = CF(t=1) x r(t=1)+CF(t=2) x r(t=2)+CF(t=3) x r(t=3)-Investment
From the lookup table (https://image.slidesharecdn.com/npvtable-140826205336-phpapp02/95/npv-t…</a">for example this link) you find the following:
Period 1, Discount Rate 5% : 0.9524
Period 2, DR 5% : 0.9070
Period 3, DR 5%: 0.8638
Ok, now you can insert all the data into your NPV equation
NPV = CF(t=1) x r(t=1)+CF(t=2) x r(t=2)+CF(t=3) x r(t=3)-Investment NPV = (10)x(0.9524)+(20)x(0.9070)+(30)x(0.8638)-20 = 33.575
If the yearly rates are different (year 1, i = 5%, year 2, i =3%, etc.), you simply multiply the discount rates, instead of using the table.
i.e
CF(1) * 1/(1+r1) + CF(2) * 1/((1+r1)(1+r2)) + ... + CF(N) * 1/((1+r1)(1+r2)...(1+rN))
.
Could you provide visual examples of your problem? Having a real hard time figuring out what you're trying to say.
NPV is a sum of PV future cash flows, so that NPV = PV(CF1) + PV(CF2) + PV(CF3), nothing more to it than that.
To find PV of any future CF, you simply divide/multiply by the appropriate discount rates. If the rate is fixed, you the formula is PV = FV/(1+r)^n, if the rate is not fixed, you need to divide by every previous rate (1+r_1)(1+r_2)...(1+r_n), up to your future year / period n.
Ipsa ullam est ipsum exercitationem. Enim labore sapiente quas aliquam aut. Quos hic minima iusto odio sit sapiente et.
Eos voluptas in vel aut. Vel iste numquam totam libero vel. Voluptatem qui voluptatibus officiis soluta veritatis odit corporis.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...