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 +…

It was coming up to the birthday of my eldest son a few weeks ago. As a parent it gets harder and harder each year, as the children get more street wise, to find a present that is both acceptable to a teenage boy as well as enabling you as a loving parent to keep the coolness that every parent tries to hang on to.

After many weeks of trying to pre-empt what he would like as a gift imagine our surprise when he approached me one morning asking for a hooded bathrobe with his initials on it, just like he’d seen a pop star or other wearing some MTV programme or other. Where on earth was I going to find a hooded monogrammed kids bathrobe.

When I was a child my birthday present were usually pretty basic things, a new football or a book or something of that ilk, nothing too taxing for my parents, I don’t think they were too bothered about trying to keep any kind of coolness going, my amusement of wondering what my parents would say if I’d have asked them for a hooded kids monogrammed bathrobe did nothing to ease my worries as to where I was going to start looking.

In the back of my mind I couldn’t help but think what my son was hoping for with hooded kid’s monogrammed bathrobe; was he hoping to emulate his gangster rap heroes with his newly acquired fashion item or was he looking to achieve the appearance of a junior mafia don?

These thoughts were more of a puzzle than a concern though and would just pop into my head at random times through out the day, maybe as diversionary tactics by my brain to detract from the main issue, where would I get my hooded kids monogrammed bathrobe from?

Obviously I didn’t want to disappoint my kid so I thought I’d better take a bit of time to research what options were available to me as far as hooded kids monogrammed bathrobe go.

After much research I discovered that there was indeed quite a demand for hooded kids bathrobes, generally the ones available are of a lightweight soft cotton weave bathrobe which are used by many of the finest tropical hotels but I didn’t think that this is quite what my kid had in mind, he wanted a rough and tough looking hooded kids monogrammed bathrobe that had attitude, not something straight out of Fantasy Island.

Imagine my amazement when on my travels around the country I was thumbing through a local newspaper only to see an advertisement for a Turkish company that were in town for one week only selling bathrobes of the very finest quality in all shapes and sizes, I had to make contact with them while I could.

I found a contact number and after much confusion finely described what it exactly was that I needed, a hooded kid’s monogrammed bathrobe, and when I wanted it for.

I chose a blue bathrobe, terry interior cotton outside with gold piping and with a plush feel to it. I gave them my kid’s initials and the order was placed.

The order for the hooded kid’s monogrammed bathrobe was e mailed directly to the Turkish bathrobe manufacturers [http://designer-bathrobes.com/The_News/Latest_News/Turkish_Bathrobes] and within 3 weeks a parcel arrived on my doorstep, a week earlier than quoted.

The bathrobe was magnificent, my son’s face was a real picture on his birthday, I was the coolest Dad in town and everything was perfect.

I have to say I love the hooded kids bathrobe so much I’ve ordered myself one.

Like father like son.