unit 7 net present value Flashcards
what does it calculate
monetary value now of a projects future cash flows
net present vlue is al about understadning the
time value of money
why would you rather have money now
you can do something with it and earna return
money in 12 months time thers uncertainity whether it will payoff therefore caries risk
what does net present value aim to do
adjust for ris of future cashflows and bring em back to monetary valuenow
future cash flows are worth
less
why do we use discoutn factors
to bring cahsflows back to present values
relevant discount factor is determined by
required rate of retunr
how do you calcula epresnt vlaue of a future cash flow
cash flow x discount factor
how do you calculate net present value
add up all present values of future cash fows
including negative investment factor
