pynain.info

Net Present Value (NPV) concept just means that money now is more valuable than money later on. Why? Simply because you can use money to make more money! You can either start a business with money, or simply put it in the bank to earn interest!

Imagine that your parents just won the lottery and offered you the choice of receiving $10,000 now or next year. Which one would you chose?

If you place the $10,000 in your bank account today and assuming you can earn 4% interest, your money could earn $10,000 x 4% = $400 in a year. In other words your $10,000 now would become $10,400 in a year’s time.

In other words, $10,000 now is more valuable than $10,000 next year. $10,000 now is actually the same as $10,400 next year (at 4% interest).

There are many different ways that people use these terms in the industry.

We can say that the Present Value (PV) of $10,400 next year is $10,000. We can also say that the Future Value (FV) of $10,000 invested today is $10,400 in one year. Using the same logic applied to multiple years (n) and a given interest rate (r) we can link Present Value (PV) and Future Value (FV) to each other by a formula:

PV = FV / (1+r)n

PV is Present Value FV is Future Value r is the interest rate (as a decimal, so 0.04, not 4%) n is the number of years Let’s use this formula to calculate Present Value of $900 in 3 years with 10% interest rate:

PV = FV / (1+r)n

PV = $900 / (1 + 0.10)3 = $900 / 1.103 = $676.18

In some finance books, you see a formula PV(r,n) showing a function of r and n:

PV(10%, 3) = 1 / (1 + 0.10)3

so for the above example you can write PV = PV(10%,3) X $900 = $676.18

NPV and Project Selection

The concept of NPV is often used for selecting projects that are worth doing. You subtract the initial investment on the project from the total Present Values of inflows to arrive at Net Present Value (NPV). You proceed with the project only if NPV is positive.

There are two main formulas for the calculation of NPV:

When cash inflows are even:

NPV = C × 1 − (1 + r)-n / r – − Initial Investment

In the above formula:

C is the net cash inflow expected to be received each period r is the required rate of return per period (or interest rate over the period) n are the number of periods during which the project is expected to operate and generate cash inflows

When cash inflows are uneven:

NPV =C1/ (1 + r)1 + C2 / (1 + r)2 + C3 / (1 + r)3 +… − Initial Investment

where:

r is the target rate of return per period (or interest rate per period); C1 is the net cash inflow during the first period; C2 is the net cash inflow during the second period; C3 is the net cash inflow during the third period, and so on…

In some books Initial Investment is also presented as C0 but with a negative value when you add it in the equation:

NPV = Co + (C1 / (1 + r)1) + C2 / (1 + r)2 + C3 / (1 + r)3 +…

Debt negotiation is a process of negotiating with your creditors to bring down your total amount of debt. A good debt negotiation company can help bring down your total debts by as much as 50 to 70 percent. A word of caution, though. Debt negotiation may sound great, but it can adversely affect your credit report.

The Pros And Cons Of Debt Negotiation

A debt negotiation company discusses your financial status with your creditors, and offers to pay off all your debts in one go. The catch is that they offer to pay, say, $4,000 cash now against the total debts of, say, $12,000. The very fact that you have appointed a debt negotiator on your behalf is a sign that you are a bad risk, and most creditors will settle for cash now, as against the balance over the next 10 years or so.

The flip side to debt negotiation is that it affects your credit rating in a negative way. The commission to your debt negotiator is usually between 14 and 25 percent of the total settlement.

What Debt Consolidation Experts Do

Debt consolidation experts negotiate on your behalf to arrange to reduce the rates of interest, and to reduce or eliminate the late fees and other charges and penalties. They help consolidate all your outstanding debts into a single debt, and arrange a monthly payment schedule consisting of reduced amount, by as much as 20 to 40 percent.

They usually charge a monthly service fee of around 10 percent, and your payments are referred to credit bureaus. They advise you to close all your credit card accounts, and may allow you to keep one active for emergency uses.

It is for you to decide which course of action you wish to take.

The process of becoming your best self is a journey towards wholeness. Only when we are whole do we move through life with ease, purpose and success. I believe there are five steps towards wholeness.

1. Accept Responsibility for Your Life.
2. Focus on the Elements. [Another way to say this is "Work through your Barriers"].
3. Complete the Past.
4. Plan for the Future.
5. Live in the Present.

While most of us see the value in working towards wholeness, sometimes we get stuck in accepting, or practicing, an individual step.

As if wholeness was not enough, here are the top 3 reasons for Live in the Present:

1. You get to be 100% present and live consciously. All you really have is the moment. The more consciously you live your life, the easier it is to grow and develop and focus on becoming your best self. Being capable of living in the present means that there is very little old stuff dragging you down. In turn, this allows us to put more energy into dealing with our daily life, making it flow more efficiently.
2. Staying present allows for appropriate responses to your life.. When you live “in” the moment, you respond appropriately and consciously to everything that comes your way. There is no guilt from the past or fear of the future coloring your responses. There are no unresolved buttons pushed which create inappropriate or misplaced responses. It’s a very healthy place to be!
3. You save on therapy and counseling fees. When you think about the reasons we go for therapy or counseling, the majority of those reasons stem from our guilt or anger from the past and our fears for the future. We very seldom focus on ‘current’ history, except in how it relates to our guilt or fear, our past or future. The beauty of living in the present is that you get to feel what you feel when you feel it. Acknowledging our legitimate feelings at the time allows you to express them and move on. That’s the same as saying no therapy or counseling needed!