# Net Present Value https://store.theartofservice.com/the-net-present-value-toolkit.html.

## Presentation on theme: "Net Present Value https://store.theartofservice.com/the-net-present-value-toolkit.html."— Presentation transcript:

Net Present Value https://store.theartofservice.com/the-net-present-value-toolkit.html

Retirement Size of lump sum required
To pay for your pension, assumed for simplicity to be received at the end of each year, and taking discounted values in the manner of a net present value calculation, you need a lump sum available at retirement of: https://store.theartofservice.com/the-net-present-value-toolkit.html

Spreadsheet In addition to the fundamental operations of arithmetic and mathematical functions, modern spreadsheets provide built-in functions for common financial and statistical operations. Such calculations as net present value or standard deviation can be applied to tabular data with a pre-programmed function in a formula. Spreadsheet programs also provide conditional expressions, functions to convert between text and numbers, and functions that operate on strings of text. https://store.theartofservice.com/the-net-present-value-toolkit.html

Rate of return - Internal rate of return
The internal rate of return (IRR), a variety of money-weighted rate of return, is the rate of return which makes the net present value of cash flows zero. It is a solution satisfying the following equation: https://store.theartofservice.com/the-net-present-value-toolkit.html

Rate of return - Uses In the capital budgeting process, companies would traditionally compare the internal rates of return of different projects to decide which projects to pursue in order to maximumize returns for the company's stockholders. Other tools employed by companies in capital budgeting include payback period, net present value, and profitability index. https://store.theartofservice.com/the-net-present-value-toolkit.html

DEAR WIKIPEDIA READERS: We are the small non-profit that runs the #5 website in the world. We have only 175 staff but serve 500 million users, and have costs like any other top site: servers, power, programs, and staff. To protect our independence, we'll never run ads. We take no government funds. We survive on donations averaging about $15. Now is the time we ask. If everyone reading this right now gave$3, our fundraiser would be done within an hour. Wikipedia is something special. It is like a library or a public park. It is like a temple for the mind, a place we can all go to think and learn. If Wikipedia is useful to you, take one minute to keep it online and ad-free another year. Please help us forget fundraising and get back to Wikipedia. Thank you. - Real estate In valuing real estate, a similar approach may be used. The "intrinsic value" of real estate is therefore defined as the net present value of all future net cash flows which are foregone by buying a piece of real estate instead of renting it in perpetuity. These cash flows would include rent, inflation, maintenance and property taxes. This calculation can be done using the Gordon model. https://store.theartofservice.com/the-net-present-value-toolkit.html

Electric vehicle - Electric public transit efficiency
In terms of net present value, they are also the cheapest—Blackpool trams are still running after 100-years, but combustion buses only last about 15-years. https://store.theartofservice.com/the-net-present-value-toolkit.html

Simulation - Finance In finance, computer simulations are often used for scenario planning. Risk-adjusted net present value, for example, is computed from well-defined but not always known (or fixed) inputs. By imitating the performance of the project under evaluation, simulation can provide a distribution of NPV over a range of discounts and allowances|discount rates and other variables. https://store.theartofservice.com/the-net-present-value-toolkit.html

Phase–gate model - Effective gating
*** Expected profitability (e.g., net present value) https://store.theartofservice.com/the-net-present-value-toolkit.html

When a phase-gate model incorporates cost and fiscal analysis tools such as net present value, the organization can potentially be provided with quantitative information regarding the feasibility of developing potential product ideas https://store.theartofservice.com/the-net-present-value-toolkit.html

Finance - Personal finance
Using net present value calculators, the financial planner will suggest a combination of asset earmarking and regular savings to be invested in a variety of investments https://store.theartofservice.com/the-net-present-value-toolkit.html

Levelised energy cost - Cost factors
To evaluate the total cost of production of electricity, the streams of costs are converted to a net present value using the time value of money. These costs are all brought together using discounted cash flow. https://store.theartofservice.com/the-net-present-value-toolkit.html

Plug-in hybrid - Cost of batteries
This finding was estimated comparing their lifetime net present value at 2010 purchase and operating costs for the U.S https://store.theartofservice.com/the-net-present-value-toolkit.html

Autism - Management For someone born in 2000, a US study estimated an average lifetime cost of $(net present value in dollars, inflation-adjusted from 2003 estimate), with about 10% medical care, 30% extra education and other care, and 60% lost economic productivity https://store.theartofservice.com/the-net-present-value-toolkit.html Plug-in electric vehicle - Cost of batteries and cost of ownership A study published in 2011 by the Belfer Center for Science and International Affairs|Belfer Center, Harvard University, found that the gasoline costs savings of plug-in electric cars do not offset their higher purchase prices when comparing their lifetime net present value of purchase and operating costs for the U.S https://store.theartofservice.com/the-net-present-value-toolkit.html All-electric car - Total cost of ownership The study compared the lifetime net present value at 2010 purchase and operating costs for the US market with no Government incentives for plug-in electric vehicles#United States|government subidies https://store.theartofservice.com/the-net-present-value-toolkit.html Reaction vessel Chemical engineers design reactors to maximize net present value for the given reaction https://store.theartofservice.com/the-net-present-value-toolkit.html Copenhagen Metro - Background Despite requiring the highest investment, it had the highest net present value. https://store.theartofservice.com/the-net-present-value-toolkit.html Economics of global warming - Cost-benefit analysis and risk In a cost-benefit analysis, an acceptable risk means that the benefits of a climate policy outweigh the costs of the policy. The standard rule used by public and private decision makers is that a risk will be acceptable if the expected net (economics)|net present value is positive. The expected value is the mean of the distribution of expected outcomes. https://store.theartofservice.com/the-net-present-value-toolkit.html Patent valuation - Income-based method This method is based on the principle that the value of an asset is intrinsic to the expected income flows it generates. After the income is estimated, the result is discounted by an appropriate discount factor with the objective to adjust it to the present circumstances and therefore to determine the net present value of the intellectual property. There are different methods of calculation of the future cash flows, such as: https://store.theartofservice.com/the-net-present-value-toolkit.html Patent valuation - IPScore IPscore provides a financial forecast showing the net present value of the evaluated technologies, as well as producing output in the form of graphical overviews and a report to facilitate communication of the results of the evaluation. https://store.theartofservice.com/the-net-present-value-toolkit.html Patent valuation - Toolip Valuation It is based on an income model for patent valuation, taking into account the future-projected cash flows associated with the valuated project, and computing them as a net present value by applying discount factors https://store.theartofservice.com/the-net-present-value-toolkit.html Decision trees - Advantages and disadvantages * Can be combined with other decision techniques. The following example uses Net Present Value calculations, PERT 3-point estimations (decision #1) and a linear distribution of expected outcomes (decision #2): https://store.theartofservice.com/the-net-present-value-toolkit.html National Broadband Network - Agreement with Telstra and Optus 2011 NBN Co signed a definitive agreement with Telstra on estimated to be worth post-tax net present value, Building upon the signing of a financial Heads of Agreement (law)|heads of agreement a year beforehand https://store.theartofservice.com/the-net-present-value-toolkit.html National Broadband Network - Agreement with Telstra and Optus 2011 This clause is similar to the one in the agreement with Optus over its hybrid fibre-coaxial network estimated to be worth post-tax net present value. The ACCC—whose approval is required before both agreements take effect—raised concerns about the clauses being anti-competitive. Both Telstra and Optus would remain the owner of their respective networks. On 18 October 2011, Telstra shareholders overwhelmingly approved the deal. https://store.theartofservice.com/the-net-present-value-toolkit.html Demurrage currency - Theory In particular, for long-term investment financing, it affects the dynamics of net present value (NPV) calculations https://store.theartofservice.com/the-net-present-value-toolkit.html Internal rate of return - Definition The internal rate of return on an investment or project is the annualized effective compounded return rate or rate of return that makes the net present value (NPV as NET*1/(1+IRR)^year) of all cash flows (both positive and negative) from a particular investment equal to zero. It can also be defined as the discount rate at which the present value of all future cash flow is equal to the initial investment or in other words the rate at which an investment breaks even. https://store.theartofservice.com/the-net-present-value-toolkit.html Internal rate of return - Definition In more specific terms, the IRR of an investment is the Interest rate|discount rate at which the net present value of costs (negative cash flows) of the investment equals the net present value of the benefits (positive cash flows) of the investment. https://store.theartofservice.com/the-net-present-value-toolkit.html Internal rate of return - Uses of IRR Because the internal rate of return is a Rate (mathematics)|rate quantity, it is an indicator of the efficiency, quality, or Yield (finance)|yield of an investment. This is in contrast with the net present value, which is an indicator of the value or Magnitude (mathematics)|magnitude of an investment. https://store.theartofservice.com/the-net-present-value-toolkit.html Internal rate of return - Uses of IRR As per Hansen, 2004.The rate of return that equates the present value of a project’s cash inflows with the present value of its cash outflows i.e. it sets out the net present value equal to zero. Internal rate of return is basically used to measure the efficiency of capital investment. Internal rate of return is generally required low cost of capital to accept the project. https://store.theartofservice.com/the-net-present-value-toolkit.html Internal rate of return - Calculation Given a collection of pairs (time, cash flow) involved in a project, the internal rate of return follows from the net present value as a function of the rate of return. A rate of return for which this function is zero is an internal rate of return. https://store.theartofservice.com/the-net-present-value-toolkit.html Internal rate of return - Calculation Given the (period, cash flow) pairs (n, C_n) where n is a positive integer, the total number of periods N, and the net present value \mathrm, the internal rate of return is given by r in: https://store.theartofservice.com/the-net-present-value-toolkit.html Internal rate of return - Mathematics Mathematically, the value of the investment is assumed to undergo exponential growth or decay according to some rate of return (any value greater than minus;100%), with discontinuities for cash flows, and the IRR of a series of cash flows is defined as any rate of return that results in a net present value of zero (or equivalently, a rate of return that results in the correct value of zero after the last cash flow). https://store.theartofservice.com/the-net-present-value-toolkit.html Internal rate of return - Mathematics Towards a rate of return of minus;100% the net present value approaches infinity with the sign of the last cash flow, and towards a rate of return of positive infinity the net present value approaches the first cash flow (the one at the present) https://store.theartofservice.com/the-net-present-value-toolkit.html Cost-benefit analysis CBA is related to, but distinct from cost-effectiveness analysis. In CBA, benefits and costs are expressed in monetary terms, and are adjusted for the time value of money, so that all flows of benefits and flows of project costs over time (which tend to occur at different points in time) are expressed on a common basis in terms of their net present value. https://store.theartofservice.com/the-net-present-value-toolkit.html Cost-benefit analysis - Process # Calculate net present value of project options. https://store.theartofservice.com/the-net-present-value-toolkit.html Net present value In finance, the 'net present value' ('NPV') or 'net present worth' ('NPW') of a time series of cash flows, both incoming and outgoing, is defined as the sum of the present values (PVs) of the individual cash flows of the same entity. https://store.theartofservice.com/the-net-present-value-toolkit.html Net present value - Alternative capital budgeting methods * Adjusted present value (APV): adjusted present value, is the net present value of a project if financed solely by ownership equity plus the present value of all the benefits of financing. https://store.theartofservice.com/the-net-present-value-toolkit.html Nuisance - Remedies In theory, the permanent damage amount should be the net present value of all future damages suffered by the plaintiff. https://store.theartofservice.com/the-net-present-value-toolkit.html Customer loyalty - The service quality model It is claimed by Fred Reichheld|Reichheld and Sasser (1990) that a 5% improvement in customer retention can cause an increase in profitability between 25% and 85% (in terms of net present value) depending upon the industry https://store.theartofservice.com/the-net-present-value-toolkit.html Whole-life cost - Project appraisal In this way, the whole-life costs and benefits of each option are considered and usually converted using Social discount rate|discount rates into net present value costs and benefits. This results in a benefit cost ratio for each option, usually compared to the do-nothing counterfactual. Typically the highest benefit-cost ratio option is chosen as the preferred option. https://store.theartofservice.com/the-net-present-value-toolkit.html Lifetime value - Methodology # calculation of the net present value of these future amountsRyals, L. (2008). Managing Customers Profitably. ISBN p.85. https://store.theartofservice.com/the-net-present-value-toolkit.html Lifetime value - NPV vs. nominal prediction The most accurate CLV predictions are made using the net present value (NPV) of each future net profit source, so that the revenue to be received from the customer in the future is recognized at the future value of money https://store.theartofservice.com/the-net-present-value-toolkit.html Integrated business planning - Analyses * Optimization to any variable or ratio, including balance sheet, Profit (accounting)|profitability, Net present value|NPV, cash flow, etc. https://store.theartofservice.com/the-net-present-value-toolkit.html Corporate finance - Investment analysis and capital budgeting (1) Corporate management seeks to maximize the value of the firm by investing in projects which yield a positive net present value when valued using an appropriate discount rate in consideration of risk https://store.theartofservice.com/the-net-present-value-toolkit.html Corporate finance - Investment and project valuation These present values are then summed, and this sum net of the initial investment outlay is the Net present value|NPV https://store.theartofservice.com/the-net-present-value-toolkit.html Corporate finance - Quantifying uncertainty This histogram provides information not visible from the static DCF: for example, it allows for an estimate of the probability that a project has a net present value greater than zero (or any other value). https://store.theartofservice.com/the-net-present-value-toolkit.html Dodd–Frank Wall Street Reform and Consumer Protection Act - Subtitle G – Mortgage Resolution and Modification This section requires every mortgage servicer participating in the program and denies a re-modification request to provide the borrower with any data used in a net present value (NPV) analysis https://store.theartofservice.com/the-net-present-value-toolkit.html Asteroid mining - Financial feasibility Determining financial feasibility is best represented through net present value https://store.theartofservice.com/the-net-present-value-toolkit.html Government debt - Implicit debt A problem with these implicit government insurance liabilities is that it is hard to cost them accurately, since the amounts of future payments depend on so many factors. First of all, the social security claims are not open Bond (finance)|bonds or debt papers with a stated time frame, time to maturity, nominal value, or net present value. https://store.theartofservice.com/the-net-present-value-toolkit.html Cash Flow *to determine a project's rate of return or value. The time of cash flows into and out of projects are used as inputs in financial models such as internal rate of return and net present value. https://store.theartofservice.com/the-net-present-value-toolkit.html GMR Group - Maldives controversy With respect to the corruption and bribery allegations made by various political parties against the GMR agreement, Government's Anti-Corruption Commission in its 61 page investigative report made public in June 2013, concluded that the bidding process was conducted fairly by the IFC, and that the GMR-MAHB consortium won the contract by proposing the highest net present value of the concession fee https://store.theartofservice.com/the-net-present-value-toolkit.html HP-35 - Descendants * The 'HP-80' and cheaper 'HP-70' provided financial, rather than scientific functions, such as future value and net present value. https://store.theartofservice.com/the-net-present-value-toolkit.html Swap (finance) - Valuation The value of a swap is the net present value (NPV) of all estimated future cash flows. A swap is worth zero when it is first initiated, however after this time its value may become positive or negative.p160 There are two ways to value swaps: in terms of Bond (finance)|bond prices, or as a portfolio of forward contracts.p163 https://store.theartofservice.com/the-net-present-value-toolkit.html Project accounting The capital budget processes of corporations and governments are chiefly concerned with major investment projects that typically have upfront costs and longer term benefits. Investment go / no-go decisions are largely based on net present value assessments. Project accounting of the costs and benefits can provide crucially important feedback on the quality of these important decisions. https://store.theartofservice.com/the-net-present-value-toolkit.html Value driven maintenance - Value drivers in Maintenance What exactly is value? In financial literature;Financial terms explained, value (net present value) is defined as: https://store.theartofservice.com/the-net-present-value-toolkit.html Value driven maintenance - VDM Formula The VDM formula is derived from the net present value formula and can be used to calculate the value of maintenance. The VDM formula is: https://store.theartofservice.com/the-net-present-value-toolkit.html Financial Planning Standards Board - Areas of focus Using net present value calculators, the financial planner will suggest a combination of asset earmarking and regular savings to be invested in a variety of investments https://store.theartofservice.com/the-net-present-value-toolkit.html Overall equipment effectiveness - OEE as a heuristic resources to other projects or business units) then it may be more appropriate for example to use an expected net present value https://store.theartofservice.com/the-net-present-value-toolkit.html Sequent Computer Systems - IBM purchase and disappearance Even if it generated zero revenue for IBM, the net present value of Sequent from IBM's viewpoint was higher inside IBM than inside Sun. https://store.theartofservice.com/the-net-present-value-toolkit.html Working capital - Decision criteria By definition, working capital management entails short-term decisions—generally, relating to the next one-year period—which are reversible. These decisions are therefore not taken on the same basis as capital-investment decisions (net present value|NPV or related, as above); rather, they will be based on cash flows, or profitability, or both. https://store.theartofservice.com/the-net-present-value-toolkit.html Rational pricing - Valuation at initiation To be arbitrage free, the terms of a swap contract are such that, initially, the Net present value|Net present value of these future cash flows is equal to zero; see Swap (finance)#Valuation|swap valuation https://store.theartofservice.com/the-net-present-value-toolkit.html Government spending - Infrastructure and investment: gross fixed capital formation Infrastructure spending is considered government investment because it will usually save money in the long run, and thereby reduce the net present value of government liabilities. https://store.theartofservice.com/the-net-present-value-toolkit.html Agency Theory - Options framework At the same time, since equity may be seen as a call option on the value of the firm, an increase in the variance in the firm value, other things remaining equal, will lead to an increase in the value of equity, and stockholders may therefore take risky projects with negative net present values, which while making them better off, may make the bondholders worse off https://store.theartofservice.com/the-net-present-value-toolkit.html Business valuation - Income, asset and market approaches Generally, the income approaches determine value by calculating the net present value of the benefit stream generated by the business (discounted cash flow); the asset-based approaches determine value by adding the sum of the parts of the business (net asset value); and the market approaches determine value by comparing the subject company to other companies in the same industry, of the same size, and/or within the same region https://store.theartofservice.com/the-net-present-value-toolkit.html Business valuation - Discount or capitalization rates * In discounted cash flow|DCF valuations, the discount rate, often an estimate of the cost of capital for the business is used to calculate the net present value of a series of projected cash flows. https://store.theartofservice.com/the-net-present-value-toolkit.html Working capital management - Investment and project valuation These present values are then summed, and this sum net of the initial investment outlay is the Net present value|NPV https://store.theartofservice.com/the-net-present-value-toolkit.html Capital budgeting - Capital Budgeting Definition (1) Corporate management seeks to maximize the value of the firm by investing in projects which yield a positive net present value when valued using an appropriate discount rate in consideration of risk https://store.theartofservice.com/the-net-present-value-toolkit.html Capital budgeting - Capital Budgeting Definition Each potential project's value should be estimated using a discounted cash flow (DCF) valuation, to find its net present value (NPV) https://store.theartofservice.com/the-net-present-value-toolkit.html Capital budgeting - Capital Budgeting Definition Popular methods of capital budgeting include net present value (NPV), internal rate of return (IRR), discounted cash flow (DCF) and payback period. https://store.theartofservice.com/the-net-present-value-toolkit.html Capital budgeting - Internal rate of return The 'internal rate of return' (IRR) is defined as the Interest rate|discount rate that gives a net present value (NPV) of zero. It is a commonly used measure of investment efficiency. https://store.theartofservice.com/the-net-present-value-toolkit.html Capital budgeting - Equivalent annuity method It is often used when comparing investment projects of unequal lifespans. For example if project A has an expected lifetime of 7 years, and project B has an expected lifetime of 11 years it would be improper to simply compare the net present values (NPVs) of the two projects, unless the projects could not be repeated. https://store.theartofservice.com/the-net-present-value-toolkit.html Capital budgeting - Equivalent annuity method Alternatively the chain method can be used with the net present value|NPV method under the assumption that the projects will be replaced with the same cash flows each time. To compare projects of unequal length, say 3 years and 4 years, the projects are chained together, i.e. four repetitions of the 3 year project are compare to three repetitions of the 4 year project. The chain method and the EAC method give mathematically equivalent answers. https://store.theartofservice.com/the-net-present-value-toolkit.html Capital budgeting - Real options Real options analysis try to value the choices - the option value - that the managers will have in the future and adds these values to the Net present value|NPV. https://store.theartofservice.com/the-net-present-value-toolkit.html Real options valuation - Applicability of standard techniques ROV is often contrasted with more standard techniques of capital budgeting, such as discounted cash flow (DCF) analysis / net present value (NPV) https://store.theartofservice.com/the-net-present-value-toolkit.html Real options valuation - Valuation inputs ** spot price: the starting or current Valuation (finance)|value of the project is required: this is usually based on management's best guess as to the gross value of the project's cash flows and resultant net present value|NPV; https://store.theartofservice.com/the-net-present-value-toolkit.html Capital structure - Agency Costs * 'Asset substitution effect': As D/E increases, management has an increased incentive to undertake risky (even negative Net present value|NPV) projects. This is because if the project is successful, share holders get all the upside, whereas if it is unsuccessful, debt holders get all the downside. If the projects are undertaken, there is a chance of firm value decreasing and a wealth transfer from debt holders to share holders. https://store.theartofservice.com/the-net-present-value-toolkit.html Fictitious capital *In terms of mainstream economics|mainstream financial economics, fictitious capital is the net present value of future cash flows. https://store.theartofservice.com/the-net-present-value-toolkit.html Real estate appraisal - Types of value *'Value-in-use', or 'use value' – The net present value (NPV) of a cash flow that an asset generates for a specific owner under a specific use. Value-in-use is the value to one particular user, and may be above or below the market value of a property. https://store.theartofservice.com/the-net-present-value-toolkit.html Yield (finance) - Real Estate Property Equivalent Yield lies somewhere in between the initial yield and reversionary yield, it encapsulates the Discounted cash flow|DCF of the property with rents rising (or falling) from the current annualised rent to the underlying estimated rental value (ERV) less costs that are incurred along the way. The discount rate used to calculate the net present value (NPV) of the Discounted cash flow|DCF to equal zero is the equivalent yield, or the Internal rate of return|IRR. https://store.theartofservice.com/the-net-present-value-toolkit.html Discounted cash flow All future cash flows are estimated and Discounting|discounted to give their present values (PVs)—the sum of all future cash flows, both incoming and outgoing, is the net present value (NPV), which is taken as the value or price of the cash flows in question https://store.theartofservice.com/the-net-present-value-toolkit.html Market value added - Basic formula MVA is the present value of a series of Economic value added|EVA values. MVA is economically equivalent to the traditional Net present value|NPV measure of worth for evaluating an after-tax cash flow profile of a project if the cost of capital is used for discounting. https://store.theartofservice.com/the-net-present-value-toolkit.html Working capital management - Quantifying uncertainty This histogram provides information not visible from the static DCF: for example, it allows for an estimate of the probability that a project has a net present value greater than zero (or any other value). https://store.theartofservice.com/the-net-present-value-toolkit.html Adjusted present value 'Adjusted Present Value' ('APV') is a business valuation method. APV is the net present value of a project if financed solely by ownership equity plus the present value of all the benefits of financing. It was first studied by Stewart Myers, a professor at the MIT Sloan School of Management and later theorized by Lorenzo Peccati, professor at the Bocconi University, in 1973. https://store.theartofservice.com/the-net-present-value-toolkit.html Debt to GDP ratio - Applications The World Bank and the IMF hold that “a country can be said to achieve external debt sustainability if it can meet its current and future external debt service obligations in full, without recourse to debt rescheduling or the accumulation of arrears and without compromising growth.” According to these two institutions, external debt sustainability can be obtained by a country “by bringing the net present value (NPV) of external public debt down to about 150 percent of a country’s exports or 250 percent of a country’s revenues.” [http://www.internationalmonetaryfund.com/external/np/hipc/2001/lt/ pdf] High external debt is believed to have harmful effects on an economy.Bivens, L https://store.theartofservice.com/the-net-present-value-toolkit.html External debt - External debt sustainability According to these two institutions, bringing the net present value (NPV) of external public debt down to about 150 percent of a country's exports or 250 percent of a country's revenues would help eliminating this critical barrier to longer-term debt sustainability.Page 4 in [http://www.imf.org/external/np/hipc/2001/lt/ pdf The Challenge of Maintaining Long-term External Debt Sustainability], World Bank and International Monetary Fund, April 2001, ii +48 pp https://store.theartofservice.com/the-net-present-value-toolkit.html KOCE-TV - KOCE vs. Daystar A lower court ruled in favor of the college district and the foundation; but on June 23, 2005, the California Court of Appeals ruled that the sale of KOCE was illegal, since the offer was modified after the end of bidding and because the value of the bid was not expressed in net present value terms https://store.theartofservice.com/the-net-present-value-toolkit.html Intrinsic value (finance) - Real estate In valuing real estate, a similar approach may be used. The intrinsic value of real estate is therefore defined as the net present value of all future net cash flows which are foregone by buying a piece of real estate instead of renting it in perpetuity. These cash flows would include rent, inflation, maintenance and property taxes. This calculation can be done using the Gordon model. https://store.theartofservice.com/the-net-present-value-toolkit.html Brand equity - Methodologies The royalty relief method involves estimating likely future sales, applying an appropriate royalty rate to them and then discounting estimated future, post-tax royalties, to arrive at a Net Present Value (NPV) https://store.theartofservice.com/the-net-present-value-toolkit.html Loan modification in the United States - IndyMAC plan #Modify the loan terms based on waterfalls, starting at a front-end 38 percent HTI ratio down to a 31 percent HTI ratio subject to a formal net present value (NPV) floor. https://store.theartofservice.com/the-net-present-value-toolkit.html Loan modification in the United States - Loan modification terms and procedures *Participating loan servicers will be required to use a net present value (NPV) test on each loan that is at risk of imminent default or at least 60 days delinquent. The NPV test will compare the net present value of cash flows with modification and without modification. If the test is positive: meaning that the net present value of expected cash flow is greater in the modification scenario: the servicer must modify absent fraud or a contract prohibition. https://store.theartofservice.com/the-net-present-value-toolkit.html National Asset Management Agency - The Draft Business Plan The Draft Business Plan looks at sensitivity analysis, indicating that if short and/or long-term interest rates rise, there would be an erosion of the €5 billion positive cash flow to NAMA. Similarly, if the default rate increases, this cash flow would be eroded. The document states that an increase of the default rate to 31% would erode in full the net present value of the positive cash flow. https://store.theartofservice.com/the-net-present-value-toolkit.html Lost decade (Japan) - Interpretations They suggest that Japan’s sluggish investment activity is likely to be better understood in terms of low levels of desired capital expenditure and not in terms of credit constraints that prohibit firms from financing projects with positive net present value (NPV) https://store.theartofservice.com/the-net-present-value-toolkit.html Wealth elasticity of demand - Macroeconomic implications The elasticity has important implications for monetary policy: Investments with a fixed Yield (finance)|yield (such as a bond paying coupons at 5%) will increase in net present value as interest rates fall https://store.theartofservice.com/the-net-present-value-toolkit.html Wealth elasticity of demand - Why income and wealth elasticities are separable ** Intertemporal consumption: Nominal gains in stock market portfolios and other assets tend to have smaller effects on immediate consumption than predicted by the lifetime-income hypothesis (of Rationality|rational consumption averaging based on Net present value|NPV income expectations). https://store.theartofservice.com/the-net-present-value-toolkit.html Gross fixed capital formation - Economic analysis Infrastructure spending is considered government investment because it will usually save money in the long run, and thereby reduce the net present value of government liabilities https://store.theartofservice.com/the-net-present-value-toolkit.html Income approach - Discounted Cash Flow The Discounted cash flow model is analogous to net present value estimation in finance https://store.theartofservice.com/the-net-present-value-toolkit.html Dividend discount model [http://www.investopedia.com/articles/fundamental/04/ asp Investopedia – Digging Into The Dividend Discount Model] In other words, it is used to value stocks based on the net present value of the future dividends https://store.theartofservice.com/the-net-present-value-toolkit.html United States federal budget - Budget principles The costs of some federal credit and loan programs, according to provisions of the Federal Credit Reform Act of 1990, are calculated on a net present value basis.The Federal Credit Reform Act was passed as part of the Omnibus Budget Reconciliation Act of 1990 (P.L https://store.theartofservice.com/the-net-present-value-toolkit.html Economy of Mozambique - Macroeconomic review With a high foreign debt (originally$5.7 billion at 1998 net present value) and a good track record on economic reform, Mozambique was the first African country to receive debt relief under the initial Heavily Indebted Poor Country (HIPC) Initiative https://store.theartofservice.com/the-net-present-value-toolkit.html

Return (finance) - Logarithmic or continuously compounded return
When the internal rate of return is greater than the cost of capital, (which is also referred to as the 'required rate of return'), the investment adds value, i.e. the net present value of cash flows, discounted at the cost of capital, is greater than zero. Otherwise, the investment does not add value. https://store.theartofservice.com/the-net-present-value-toolkit.html

Relationship marketing - Retention
(1990) Zero defects: quality comes to services, Harvard Business Review, Sept–Oct, 1990, pp 105–111 that a 5% improvement in customer retention can cause an increase in profitability of between 25 and 85 percent (in terms of net present value) depending on the industry https://store.theartofservice.com/the-net-present-value-toolkit.html

Priority review voucher - The mechanism
For a company with a top selling drug with a net present value close to $3 billion, the Duke researchers calculated the accelerated approval could be worth over$300 million https://store.theartofservice.com/the-net-present-value-toolkit.html

Modified Internal Rate of Return
G., Net present value and the rate of return: Implicit and explicit reinvestment assumptions, The Engineering Economist 33, 1988, https://store.theartofservice.com/the-net-present-value-toolkit.html

Modified Internal Rate of Return - Comparing projects of different sizes
M., Efficient capital project selection through a yield-based capital budgeting technique, The Engineering Economist 38(1), 1992, 1-18.Hajdasinski, M., Remarks in the context of 'The case for the generalized net present value formula', The Engineering Economist 40(2), 1995, https://store.theartofservice.com/the-net-present-value-toolkit.html

Monte Carlo methods in finance - Overview
This distribution allows, for example, for an estimate of the probability that the project has a net present value greater than zero (or any other value).[http://www.simularsoft.com.ar/SimulAr1e.htm] See Corporate finance#Quantifying uncertainty|further under Corporate finance. https://store.theartofservice.com/the-net-present-value-toolkit.html

Payback period - Purpose
Alternative measures of return preferred by economists are net present value and internal rate of return https://store.theartofservice.com/the-net-present-value-toolkit.html

RNPV In finance, 'rNPV' (risk-adjusted net present value) or 'eNPV' (expected NPV) is a method to value risky future cash flows. rNPV modifies the standard NPV calculation of discounted cash flow (DCF) analysis by adjusting (multiplying) each cash flow by the estimated probability that it occurs (the estimated success rate). In the language of probability theory, the rNPV is the expected value. https://store.theartofservice.com/the-net-present-value-toolkit.html

NPV * Net present value, an economic standard method for evaluating competing long-term projects in capital budgeting https://store.theartofservice.com/the-net-present-value-toolkit.html

Minimum acceptable rate of return
A common method for evaluating a hurdle rate is to apply the discounted cash flow method to the project, which is used in net present value models https://store.theartofservice.com/the-net-present-value-toolkit.html

Minimum acceptable rate of return - Project analysis
When a project has been proposed, it must first go through a preliminary analysis in order to determine whether or not it has a positive net present value using the MARR as the discount rate https://store.theartofservice.com/the-net-present-value-toolkit.html

Annual effective discount rate - Business calculations
Businesses normally apply this discount rate by calculating the net present value of the decision. https://store.theartofservice.com/the-net-present-value-toolkit.html

Time-weighted return - Internal Rate of Return
One of these methods is the internal rate of return. Like the true time-weighted return method, the internal rate of return is also based on a compounding principle. It is the discount rate that will set the net present value of all external flows and the terminal value equal to the value of the initial investment. However, solving the equation to find an estimate of the internal rate of return generally requires an iterative numerical method. https://store.theartofservice.com/the-net-present-value-toolkit.html

Z-spread - Definition If these payments are discounted to net present value (NPV) with a riskless zero-coupon Treasury yield curve, the sum of their values will tend to overestimate the market price of the MBS https://store.theartofservice.com/the-net-present-value-toolkit.html

Robert D. Arnott - Writing
Using the prism of clairvoyant value - the net present value of all future cash flows on an investment, which is only known long after-the-fact for stocks in decades past - this paper and related subsequent paper demonstrate that the market does a superb job of differentiating which stocks deserve premium valuation multiples, but then pays too much for them https://store.theartofservice.com/the-net-present-value-toolkit.html

Actuarial reserves An 'actuarial reserve' is a liability equal to the net present value of the future expected cash flows of a contingent event. In the insurance context an actuarial reserve is the present value of the future cash flows of an insurance policy and the total liability of the insurer is the sum of the actuarial reserves for every individual policy. Regulated insurers are required to keep offsetting assets to pay off this future liability. https://store.theartofservice.com/the-net-present-value-toolkit.html

Interest rate swap - Structure
At the point of initiation of the swap, the swap is priced so that it has a net present value of zero. If one party wants to pay 50 Basis point|bps above the par swap rate, the other party has to pay approximately 50 over LIBOR to compensate for this. https://store.theartofservice.com/the-net-present-value-toolkit.html

Customer retention - Customer lifetime value
Customer lifetime value enables an organization to calculate the net present Value (economics)|value of the Profit (accounting)|profit an organization will realize on a customer over a given period of time. Retention Rate is the percentage of the total number of customers retained in context to the customers that approached for cancellation. https://store.theartofservice.com/the-net-present-value-toolkit.html

CAFM - Sustainability *Forecast sustainability projects’ financial impacts (net present value, internal rate of return, ROI, payback period) and environmental impacts https://store.theartofservice.com/the-net-present-value-toolkit.html

Mortgage yield In finance, 'mortgage yield' is a measure of yield (finance)|yield of Mortgage-backed security|mortgage-backed bonds. It is also known as cash flow yield. The mortgage yield, or cash flow yield, of a mortgage-backed bond is the monthly compounded discounted cash flow|discount rate at which net present value of all future cash flows from the bond will be equal to the present price of the bond.Choudhry, Moorad. Capital Market Instruments: Analysis and Valuation, (FT Press, 2002), p. 208. https://store.theartofservice.com/the-net-present-value-toolkit.html

Social Security reform - Windfall for Wall Street?
Austan Goolsbee at the University of Chicago has written a study, The Fees of Private Accounts and the Impact of Social Security Privatization on Financial Managers, which calculates that, Under Plan II of the President's Commission to Strengthen Social Security (CSSS), the net present value (NPV) of such payments would be $940 billion, and, amounts to about one-quarter (25%) of the NPV of the revenue of the entire financial sector for the next 75 years, and concludes that, The fees would be the largest windfall gain in American financial history. https://store.theartofservice.com/the-net-present-value-toolkit.html Option-adjusted spread - Definition :Take the expected value (mean Net present value|NPV) across the range of all possible rate scenarios when discounting each scenario's actual cash flows with the Treasury yield curve plus a spread, 'X'. The OAS is defined as the value of 'X' equating the market price of the MBS to its value in this theoretical framework. https://store.theartofservice.com/the-net-present-value-toolkit.html Equivalent annual cost EAC is often used as a decision making tool in capital budgeting when comparing investment projects of unequal lifespans. For example if project A has an expected lifetime of 7 years, and project B has an expected lifetime of 11 years it would be improper to simply compare the net present values (NPVs) of the two projects, unless neither project could be repeated. https://store.theartofservice.com/the-net-present-value-toolkit.html Equivalent annual cost EAC is calculated by dividing the Net present value|NPV of a project by the present value of an Annuity (finance theory)|annuity factor. Equivalently, the NPV of the project may be multiplied by the loan repayment factor. https://store.theartofservice.com/the-net-present-value-toolkit.html Debt overhang This problem emerges, for example, if a company has a new investment project with positive net present value (NPV), but cannot capture the investment opportunity due to an existing debt position, i.e., the face value of the existing debt is bigger than the expected payoff https://store.theartofservice.com/the-net-present-value-toolkit.html Debt overhang - Overview Successful bankruptcy reorganizations allow organizations to reduce their debt levels and allow new private shareholders to bear enough of the gains from new investments that they will pursue new projects that have positive expected net present value. https://store.theartofservice.com/the-net-present-value-toolkit.html Autism therapies study estimated an average Net present value|discounted lifetime cost of$ ( dollars, inflation-adjusted from 2003 estimate), with about 10% medical care, 30% extra education and other care, and 60% lost economic productivity https://store.theartofservice.com/the-net-present-value-toolkit.html

Integrated operations - Contents of the term
By deploying IO, the petroleum industry draws on lessons from the process industry. This can be seen in a larger focus on the whole production chain and management ideas imported from the production and process industry. A prominent idea in this regard is real-time Process optimization|optimization of the whole value chain, from long term management of the oil reservoir, through capacity allocations in pipe networks and calculations of the net present value of the produced oil. https://store.theartofservice.com/the-net-present-value-toolkit.html

Material selection - Cost issues
For example, life cycle assessment can show that the net present value of reducing the weight of a car by 1kg averages around $5, so material substitution which reduces the weight of a car can cost up to$5 per kilogram of weight reduction more than the original material https://store.theartofservice.com/the-net-present-value-toolkit.html

Electric car - Total cost of ownership
The study compared the lifetime net present value at 2010 purchase and operating costs for the US market with no Government incentives for plug-in electric vehicles#United States|government subsidies https://store.theartofservice.com/the-net-present-value-toolkit.html

Idaho State University - Economic developments
The Series 2012 Bonds will result in a net present value savings to the University of approximately $3.2 million.ISU Headlines » Idaho State University saves$3.2 million issuing tax-exempt bonds https://store.theartofservice.com/the-net-present-value-toolkit.html

Rail franchising in Great Britain - Criticism of the franchising process
The winning bidder offered a premium of £1,191 million (net present value) over the life of the franchise, and the other bidders offered £636 million, £513 million and £501 million. https://store.theartofservice.com/the-net-present-value-toolkit.html

Currency swap A 'currency swap' is a foreign-exchange agreement between two institutions to exchange aspects (namely the Loan|principal and/or interest payments) of a loan in one currency for equivalent aspects of an equal in net present value loan in another currency; see foreign exchange derivative https://store.theartofservice.com/the-net-present-value-toolkit.html

Electricity sector in Honduras - Generation
By law, ENEE has the mandate of prioritizing renewable-based generation when determining the optimal expansion plan. The condition is that the net present value of sequence including renewable-based generation must not exceed by more than 10 percent that of the least-cost expansion plan.World Bank, 2007 https://store.theartofservice.com/the-net-present-value-toolkit.html

CancerVax - Reverse Merger
Small, private firms, like Micromet, are less likely to find hiring an underwriter to be a positive net present value project and hence gain more benefits from going public by a reverse merger rather than an IPO.v Micromet Inc https://store.theartofservice.com/the-net-present-value-toolkit.html

Finance & Commerce - Personal finance
Using net present value calculators, the financial planner will suggest a combination of asset earmarking and regular savings to be invested in a variety of investments https://store.theartofservice.com/the-net-present-value-toolkit.html

Nationalization of oil supplies
Once these countries become the sole owners of these confiscated resources in violation of contract law, they have to decide how to maximize the net present value of their known stock of oil in the ground. https://store.theartofservice.com/the-net-present-value-toolkit.html