Present Value

Net present value 1 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.

Net present value 1 Used for capital budgeting and widely used throughout economics, finance, and accounting, it measures the excess or shortfall of cash flows, in present value terms, above the cost of funds.

Net present value 1 NPV can be described as the “difference amount” between the sums of discounted: cash inflows and cash outflows. It compares the present value of money today to the present value of money in the future, taking inflation and returns into account

Net present value - Alternative capital budgeting methods 1 * 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.

Hyperbolic discounting - Present Value of an Standard Annuity 1 The present value of a series of equal annual cash flows in arrears discounted hyperbolically:

Hyperbolic discounting - Present Value of an Standard Annuity 1 Where V is the present value, P is the annual cash flow, D is the number of annual payments and k is the factor governing the discounting.

Time value of money - Present value of a future sum 1 The present value formula is the core formula for the time value of money; each of the other formulae is derived from this formula. For example, the annuity formula is the sum of a series of present value calculations.

Time value of money - Present value of a future sum 1 The present value (PV) formula has four variables, each of which can be solved for:

Time value of money - Present value of a future sum 1 The cumulative present value of future cash flows can be calculated by summing the contributions of FVt, the value of cash flow at time t

Adjusted present value 1 '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

Adjusted present value - APV formula 1 Take Present Value (PV) of FCFs discounted by Return on Assets % (also Return on Unlevered Equity %)

Adjusted present value - APV formula 1 + Present Value of Debt's Periodic Interest Tax Shield discounted by Cost of Debt Financing %

Present value 1 The initial amount of the borrowed funds (the present value) is less than the total amount of money paid to the lender.

Present value 1 The project with the least present value, i.e

Present value - Years' Purchase 1 This equates to a present value discounted in perpetuity at 5%

Present value - Background 1 If a 100 note, payable in one year, sells for 80 now, then 80 is the present value of the note that will be worth 100 a year from now

Present value - Background 1 The operation of evaluating a present value into the future value is called a capitalization (how much will 100 today be worth in 5 years?). The reverse operation—evaluating the present value of a future amount of money—is called a discounting (how much will 100 received in 5 years—at a lottery for example—be worth today?).

Present value - Nominal Annual Rate of Interest 1 The present value of an annuity immediate is the value at time 0 of the stream of cash flows:

Present value - PV of a Bond 1 The present value of a bond is the purchase price

Present value - Technical details 1 Present value is Additive inverse|additive. The present value of a bundle of cash flows is the sum of each one's present value.

Present value - Technical details 1 The full Laplace transform is the curve of all present values, plotted as a function of interest rate

Present value - Variants/Approaches 1 There are mainly two flavors of PV. Whenever there will be uncertainties in both timing and amount of the cash flows, the expected present value approach will often be the appropriate technique.

Present value - Variants/Approaches 1 * 'Traditional Present Value Approach' – in this approach a single set of estimated cash flows and a single interest rate (commensurate with the risk, typically a weighted average of cost components) will be used to estimate the fair value.

Present value - Variants/Approaches 1 * 'Expected Present Value Approach' – in this approach multiple cash flows scenarios with different/expected probabilities and a credit-adjusted risk free rate are used to estimate the fair value.

Present value - Present Value Method of Valuation 1 An investor, the lender of money, must decide the financial project in which to invest their money, and present value offers one method of deciding.

Present value - Present Value Method of Valuation 1 The project with the smallest present value – the least initial outlay – will be chosen because it offers the same return as the other projects for the least amount of money.

Bond valuation - Present value approach 1 Below is the formula for calculating a bond's price, which uses the basic present value (PV) formula for a given discount rate: y/advancedbond/advancedbond2.asp

For More Information, Visit: m/the-present-value- toolkit.html m/the-present-value- toolkit.html The Art of Service