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Please tell me how to calculate NPV (Net Present value)
I have to give to my owner calculations for the following - His investment 60,00,000 every year for 40 years
Discount @10%. He is asking me to give Net Present value for the same.
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First Mention Cash Inflow for 40 years
than Find PV
PV = 1/(1+Discount Percent)^N
N= Number of Years
Then Multiply the Cash inflow of each year to Pv of each year
that will be discounted PV
Take total of discounted pv and minus it from original investment
if value comes in (+) approve the project otherwise not
on your calculator
enter 1/1.10 and press equal sign button for 40 times.
then press the GT button, you'll get 9.7790507
now multiply it with your principle amout i.e. 60,00,000
the net present value for this is 5,86,74,304.20/-
An organization has to take many decisions regarding the expansion of business and investment. In such cases, the organization will take the help of NPV method and base its decision on the same.
Net present value is used in Capital budgeting to analyze the profitability of a project or investment. It is calculated by taking the difference between the present value of cash inflows and present value of cash outflows over a period of time.
As the name suggests, net present value is nothing but net off of the present value of cash inflows and outflows by discounting the flows at a specified rate.
Formula for NPV
NPV = (Cash flows)/( 1+r)i
i- Initial Investment
Cash flows= Cash flows in the time period
r = Discount rate
i = time period
NPV takes into consideration the time value of money. The time value of money simply means that a rupee today is of more value today than it will be tomorrow.
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