1609-Net Present Value

Question 1

A calculation that takes into account the effects of interest (both earning and borrowing) and inflation/deflation is called the………….

Answer 1

Net Present Value

Question 2

What Decisions Will Net Present Value (NPV) Help You Make?

Answer 2

Decide whether it is in the best interest of the Govt. to lease or purchase
Decide which offer provides the best value
Get you to an apples-to-apples comparison of price in terms of time or ‘CONSTANT’ dollars

Question 3

What is Net Present Value (NPV)?

Answer 3

The difference between the present value of the receipts and the present value of expenditures is net present value

Question 4

What are the Two Factors Affecting NPV?

Answer 4

TIMING OF CASH FLOW
   Lump sum payment (at award, in the future?)
   Repetitive equal payments?
   End/Beginning of Year Payment?
   Payment(s) during the year?

THE DISCOUNT (interest) RATE USED TO CALCULATE THE PRESENT VALUE
   The higher the discount rate, the lower the present     value of an expenditure at a specified time in the future

Question 5

What is the Net Present Value equation?

Answer 5

PRESENT VALUE = DISCOUNT FACTOR X CASH FLOW