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Unit 9 assignment 1 matthew mattison

Unit 9 assignment 1 matthew mattison

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NPV

Matthew Mattison

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NPV

Time Vale of Money and PV

Time value money is a basic but powerful concept which shows that money in the

present is more valuable than the same amount of it in the future. As such, it is used

when refereeing to the time-value of money. In simple terms, capital depreciates as

time progress. This the concept of inflation where a particular amount of money

cannot buy the same number or amount of item in the future. As such, it is essential to

determine a way to calculate the future value of a current amount of cash (CFI, 2019).

In the given case, the time value of money results in the discounted cash flow in the

4th year. (Less than $30000). The formula to determine this can be given as Present

Value (PV)=Future Value (FV) (1+r)-n where r is the discount rate, and n is the

period of depreciation. In year 4, the discounted cash flow can be given as $30 000 x

(1+0.012)-4

Discounted cash flow=0.6355x$30 000= $19, 065.

As stated, $30 000 will not have the same value after four years. In the fourth

year, the amount will have lost a value of $10 935. as such $30 000 will be worth $19

065. if one was to multiply the present value with cash flow and a factor of 12% for

the four years will result into (0.636* 30000)= $19, 080, which is approximate to the

value obtained.

Application of NPV

NPV or Net Present Value is the difference between the cash inflows present

value and cash outflows present value over a particular period (CFI, 2019). It is

employed in investment and capital budgeting to analyse the profitability of an

investment scheme. It can be calculated as,

NPV Where Rt= Net inflow-outflow during a particular stretch. i is the discount

and t is the periods. It can also be calculated as NPV=PV(CI)-PV(CO). Individual

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1 NPV NPV Matthew Mattison NPV 2 Time Vale of Money and PV Time value money is a basic but powerful concept which shows that money in the present is more valuable than the same amount of it in the future. As such, it is used when refereeing to the time-value of money. In simple terms, capital depreciates as time progress. This the concept of inflation where a particular amount of money cannot buy the same number or amount of item in the future. As such, it is essential to determine a way to calculate the future value of a current amount of cash (CFI, 2019). In the given case, the time value of money results in the discounted cash flow in the 4th year. (Less than $30000). The formula to determine this can be given as Present Value (PV)=Future Value (FV) (1+r)-n where r is the discount rate, and n is the period of depreciation. In year 4, the discounted cash flow can be given as $30 000 x (1+0.012)-4 Discounted cash flow=0.6355x$30 000= $19, 065. As stated, $30 000 will not have the same value after four years. In the fourth year, the amount will have lost a value of $10 935. as such $30 000 will be worth $19 065. if one was to multiply the present value with cash flow and a fa ...
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