Net Present Value .
-
Upload
charlie-dolman -
Category
Documents
-
view
228 -
download
3
Transcript of Net Present Value .
• Net Present Value
https://store.theartofservice.com/the-net-present-value-toolkit.html
Retirement Size of lump sum required
1 To pay for your pension, assumed for simplicity to be received at the end of each year, and taking discounted
values in the manner of a net present value calculation, you need a lump
sum available at retirement of:
https://store.theartofservice.com/the-net-present-value-toolkit.html
Spreadsheet
1 In addition to the fundamental operations of arithmetic and mathematical functions, modern spreadsheets provide built-in
functions for common financial and statistical operations. Such calculations as net present value or standard deviation can be applied to tabular data with a pre-programmed function
in a formula. Spreadsheet programs also provide conditional expressions, functions to
convert between text and numbers, and functions that operate on strings of text.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Rate of return - Internal rate of return
1 The internal rate of return (IRR), a variety of money-weighted rate of return, is the rate of return which
makes the net present value of cash flows zero. It is a solution satisfying
the following equation:
https://store.theartofservice.com/the-net-present-value-toolkit.html
Rate of return - Uses
1 In the capital budgeting process, companies would traditionally
compare the internal rates of return of different projects to decide which
projects to pursue in order to maximumize returns for the
company's stockholders. Other tools employed by companies in capital budgeting include payback period, net present value, and profitability
index.https://store.theartofservice.com/the-net-present-value-toolkit.html
DEAR WIKIPEDIA READERS: We are the small non-profit that runs the #5 website in the world. We have only 175 staff but serve 500 million
users, and have costs like any other top site: servers, power, programs, and staff. To protect our independence, we'll never run
ads. We take no government funds. We survive on donations averaging about $15. Now is the time we ask. If everyone reading
this right now gave $3, our fundraiser would be done within an hour. Wikipedia is something special. It is like a library or a public park. It is like a temple for the mind, a place we can all go to think and learn. If Wikipedia is useful to you, take one minute to keep it online and ad-free another year. Please help us forget fundraising and get back to
Wikipedia. Thank you. - Real estate
1 In valuing real estate, a similar approach may be used. The "intrinsic value" of real
estate is therefore defined as the net present value of all future net cash flows which are foregone by buying a piece of
real estate instead of renting it in perpetuity. These cash flows would
include rent, inflation, maintenance and property taxes. This calculation can be
done using the Gordon model.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Electric vehicle - Electric public transit efficiency
1 In terms of net present value, they are also the cheapest—Blackpool trams are still running after 100-years, but combustion buses only
last about 15-years.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Simulation - Finance
1 In finance, computer simulations are often used for scenario planning. Risk-
adjusted net present value, for example, is computed from well-defined but not
always known (or fixed) inputs. By imitating the performance of the project under evaluation, simulation can provide
a distribution of NPV over a range of discounts and allowances|discount rates
and other variables.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Phase–gate model - Effective gating
1 *** Expected profitability (e.g., net present value)
https://store.theartofservice.com/the-net-present-value-toolkit.html
Phase–gate model - Advantages and disadvantages
1 When a phase-gate model incorporates cost and fiscal analysis tools such as net present value, the
organization can potentially be provided with quantitative
information regarding the feasibility of developing potential product ideas
https://store.theartofservice.com/the-net-present-value-toolkit.html
Finance - Personal finance
1 Using net present value calculators, the financial planner will suggest a
combination of asset earmarking and regular savings to be invested in a
variety of investments
https://store.theartofservice.com/the-net-present-value-toolkit.html
Levelised energy cost - Cost factors
1 To evaluate the total cost of production of electricity, the streams
of costs are converted to a net present value using the time value of money. These costs are all brought
together using discounted cash flow.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Plug-in hybrid - Cost of batteries
1 This finding was estimated comparing their lifetime net present
value at 2010 purchase and operating costs for the U.S
https://store.theartofservice.com/the-net-present-value-toolkit.html
Autism - Management
1 For someone born in 2000, a US study estimated an average lifetime
cost of $ (net present value in dollars, inflation-adjusted from 2003 estimate), with about 10% medical
care, 30% extra education and other care, and 60% lost economic
productivity
https://store.theartofservice.com/the-net-present-value-toolkit.html
Plug-in electric vehicle - Cost of batteries and cost of ownership
1 A study published in 2011 by the Belfer Center for Science and
International Affairs|Belfer Center, Harvard University, found that the gasoline costs savings of plug-in electric cars do not offset their higher purchase prices when
comparing their lifetime net present value of purchase and operating
costs for the U.Shttps://store.theartofservice.com/the-net-present-value-toolkit.html
All-electric car - Total cost of ownership
1 The study compared the lifetime net present value at 2010 purchase and operating costs for the US market with no Government incentives for
plug-in electric vehicles#United States|government subidies
https://store.theartofservice.com/the-net-present-value-toolkit.html
Reaction vessel
1 Chemical engineers design reactors to maximize net present value for the given
reaction
https://store.theartofservice.com/the-net-present-value-toolkit.html
Copenhagen Metro - Background
1 Despite requiring the highest investment, it had the highest net present value.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Economics of global warming - Cost-benefit analysis and risk
1 In a cost-benefit analysis, an acceptable risk means that the
benefits of a climate policy outweigh the costs of the policy. The standard
rule used by public and private decision makers is that a risk will be
acceptable if the expected net (economics)|net present value is
positive. The expected value is the mean of the distribution of expected
outcomes.https://store.theartofservice.com/the-net-present-value-toolkit.html
Patent valuation - Income-based method
1 This method is based on the principle that the value of an asset is intrinsic to the
expected income flows it generates. After the income is estimated, the result is
discounted by an appropriate discount factor with the objective to adjust it to the
present circumstances and therefore to determine the net present value of the intellectual property. There are different methods of calculation of the future cash
flows, such as: https://store.theartofservice.com/the-net-present-value-toolkit.html
Patent valuation - IPScore
1 IPscore provides a financial forecast showing the net present value of the evaluated technologies, as well as
producing output in the form of graphical overviews and a report to
facilitate communication of the results of the evaluation.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Patent valuation - Toolip Valuation
1 It is based on an income model for patent valuation, taking into account
the future-projected cash flows associated with the valuated project, and computing them as a net present
value by applying discount factors
https://store.theartofservice.com/the-net-present-value-toolkit.html
Decision trees - Advantages and disadvantages
1 * Can be combined with other decision techniques. The following example uses Net Present Value
calculations, PERT 3-point estimations (decision #1) and a linear distribution of expected
outcomes (decision #2):
https://store.theartofservice.com/the-net-present-value-toolkit.html
National Broadband Network - Agreement with Telstra and Optus 2011
1 NBN Co signed a definitive agreement with Telstra on estimated
to be worth post-tax net present value, Building upon the signing of a financial Heads of Agreement (law)|
heads of agreement a year beforehand
https://store.theartofservice.com/the-net-present-value-toolkit.html
National Broadband Network - Agreement with Telstra and Optus 2011
1 This clause is similar to the one in the agreement with Optus over its hybrid fibre-
coaxial network estimated to be worth post-tax net present value. The ACCC—whose
approval is required before both agreements take effect—raised concerns about the
clauses being anti-competitive. Both Telstra and Optus would remain the owner of their respective networks. On 18 October 2011,
Telstra shareholders overwhelmingly approved the deal.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Demurrage currency - Theory
1 In particular, for long-term investment financing, it affects the
dynamics of net present value (NPV) calculations
https://store.theartofservice.com/the-net-present-value-toolkit.html
Internal rate of return - Definition
1 The internal rate of return on an investment or project is the annualized effective
compounded return rate or rate of return that makes the net present value (NPV as
NET*1/(1+IRR)^year) of all cash flows (both positive and negative) from a particular investment equal to zero. It can also be
defined as the discount rate at which the present value of all future cash flow is equal to the initial investment or in other words the
rate at which an investment breaks even.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Internal rate of return - Definition
1 In more specific terms, the IRR of an investment is the Interest rate|discount rate at which the net
present value of costs (negative cash flows) of the investment equals the
net present value of the benefits (positive cash flows) of the
investment.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Internal rate of return - Uses of IRR
1 Because the internal rate of return is a Rate (mathematics)|rate quantity,
it is an indicator of the efficiency, quality, or Yield (finance)|yield of an investment. This is in contrast with the net present value, which is an
indicator of the value or Magnitude (mathematics)|magnitude of an
investment.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Internal rate of return - Uses of IRR
1 As per Hansen, 2004.The rate of return that equates the present value
of a project’s cash inflows with the present value of its cash outflows i.e.
it sets out the net present value equal to zero. Internal rate of return
is basically used to measure the efficiency of capital investment.
Internal rate of return is generally required low cost of capital to accept
the project.https://store.theartofservice.com/the-net-present-value-toolkit.html
Internal rate of return - Calculation
1 Given a collection of pairs (time, cash flow) involved in a project, the
internal rate of return follows from the net present value as a function of the rate of return. A rate of return for
which this function is zero is an internal rate of return.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Internal rate of return - Calculation
1 Given the (period, cash flow) pairs (n, C_n) where n is a positive integer, the total number of periods N, and the net present value \mathrm, the
internal rate of return is given by r in:
https://store.theartofservice.com/the-net-present-value-toolkit.html
Internal rate of return - Mathematics
1 Mathematically, the value of the investment is assumed to undergo exponential growth or decay according to some rate of return
(any value greater than minus;100%), with discontinuities for cash flows, and the IRR of a series of cash flows is defined as any rate of return that results in a net present value of zero (or equivalently, a rate of return that results in the correct value of zero after the
last cash flow).
https://store.theartofservice.com/the-net-present-value-toolkit.html
Internal rate of return - Mathematics
1 Towards a rate of return of minus;100% the net present value approaches infinity with the sign of
the last cash flow, and towards a rate of return of positive infinity the net present value approaches the first cash flow (the one at the present)
https://store.theartofservice.com/the-net-present-value-toolkit.html
Cost-benefit analysis
1 CBA is related to, but distinct from cost-effectiveness analysis. In CBA, benefits and costs are expressed in
monetary terms, and are adjusted for the time value of money, so that all flows of benefits and flows of project costs over time (which tend to occur
at different points in time) are expressed on a common basis in terms of their net present value.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Cost-benefit analysis - Process
1 # Calculate net present value of project options.
https://store.theartofservice.com/the-net-present-value-toolkit.html
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.
https://store.theartofservice.com/the-net-present-value-toolkit.html
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.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Nuisance - Remedies
1 In theory, the permanent damage amount should be the net present
value of all future damages suffered by the plaintiff.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Customer loyalty - The service quality model
1 It is claimed by Fred Reichheld|Reichheld and Sasser (1990) that a
5% improvement in customer retention can cause an increase in profitability between 25% and 85%
(in terms of net present value) depending upon the industry
https://store.theartofservice.com/the-net-present-value-toolkit.html
Whole-life cost - Project appraisal
1 In this way, the whole-life costs and benefits of each option are
considered and usually converted using Social discount rate|discount rates into net present value costs
and benefits. This results in a benefit cost ratio for each option, usually
compared to the do-nothing counterfactual. Typically the highest benefit-cost ratio option is chosen as
the preferred option.https://store.theartofservice.com/the-net-present-value-toolkit.html
Lifetime value - Methodology
1 # calculation of the net present value of these future amountsRyals,
L. (2008). Managing Customers Profitably. ISBN 978-0-470-06063-6.
p.85.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Lifetime value - NPV vs. nominal prediction
1 The most accurate CLV predictions are made using the net present value
(NPV) of each future net profit source, so that the revenue to be received from the customer in the future is recognized at the future
value of money
https://store.theartofservice.com/the-net-present-value-toolkit.html
Integrated business planning - Analyses
1 * Optimization to any variable or ratio, including balance sheet, Profit
(accounting)|profitability, Net present value|NPV, cash flow, etc.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Corporate finance - Investment analysis and capital budgeting
1 (1) Corporate management seeks to maximize the value of the firm by investing in projects which yield a positive net present value when
valued using an appropriate discount rate in consideration of risk
https://store.theartofservice.com/the-net-present-value-toolkit.html
Corporate finance - Investment and project valuation
1 These present values are then summed, and this sum net of the
initial investment outlay is the Net present value|NPV
https://store.theartofservice.com/the-net-present-value-toolkit.html
Corporate finance - Quantifying uncertainty
1 This histogram provides information not visible from the static DCF: for
example, it allows for an estimate of the probability that a project has a net present value greater than zero
(or any other value).
https://store.theartofservice.com/the-net-present-value-toolkit.html
Dodd–Frank Wall Street Reform and Consumer Protection Act - Subtitle G – Mortgage Resolution and Modification
1 This section requires every mortgage servicer participating in the program and denies a re-modification request
to provide the borrower with any data used in a net present value
(NPV) analysis
https://store.theartofservice.com/the-net-present-value-toolkit.html
Asteroid mining - Financial feasibility
1 Determining financial feasibility is best represented through net present value
https://store.theartofservice.com/the-net-present-value-toolkit.html
Government debt - Implicit debt
1 A problem with these implicit government insurance liabilities is
that it is hard to cost them accurately, since the amounts of
future payments depend on so many factors. First of all, the social security claims are not open Bond (finance)|bonds or debt papers with a stated
time frame, time to maturity, nominal value, or net present value.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Cash Flow
1 *to determine a project's rate of return or value. The time of cash flows into and out of projects are used as inputs in financial models such as internal rate of return and
net present value.
https://store.theartofservice.com/the-net-present-value-toolkit.html
GMR Group - Maldives controversy
1 With respect to the corruption and bribery allegations made by various political parties against the GMR agreement, Government's Anti-Corruption Commission in its 61 page investigative report made public in June
2013, concluded that the bidding process was conducted fairly by the IFC, and that
the GMR-MAHB consortium won the contract by proposing the highest net present value of the concession fee
https://store.theartofservice.com/the-net-present-value-toolkit.html
HP-35 - Descendants
1 * The 'HP-80' and cheaper 'HP-70' provided financial, rather than
scientific functions, such as future value and net present value.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Swap (finance) - Valuation
1 The value of a swap is the net present value (NPV) of all estimated future cash flows. A swap is worth
zero when it is first initiated, however after this time its value may become positive or negative.p160 There are two ways to value swaps: in terms of Bond (finance)|bond prices, or as a portfolio of forward contracts.p163
https://store.theartofservice.com/the-net-present-value-toolkit.html
Project accounting
1 The capital budget processes of corporations and governments are
chiefly concerned with major investment projects that typically
have upfront costs and longer term benefits. Investment go / no-go
decisions are largely based on net present value assessments. Project accounting of the costs and benefits
can provide crucially important feedback on the quality of these
important decisions.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Value driven maintenance - Value drivers in Maintenance
1 What exactly is value? In financial literature;Financial terms explained,
http://www.businessballs.com/finance.htm value (net present value) is
defined as:
https://store.theartofservice.com/the-net-present-value-toolkit.html
Value driven maintenance - VDM Formula
1 The VDM formula is derived from the net present value formula and can be
used to calculate the value of maintenance. The VDM formula is:
https://store.theartofservice.com/the-net-present-value-toolkit.html
Financial Planning Standards Board - Areas of focus
1 Using net present value calculators, the financial planner will suggest a
combination of asset earmarking and regular savings to be invested in a
variety of investments
https://store.theartofservice.com/the-net-present-value-toolkit.html
Overall equipment effectiveness - OEE as a heuristic
1 resources to other projects or business units) then it may be more appropriate for example to use an
expected net present value
https://store.theartofservice.com/the-net-present-value-toolkit.html
Sequent Computer Systems - IBM purchase and disappearance
1 Even if it generated zero revenue for IBM, the net present value of
Sequent from IBM's viewpoint was higher inside IBM than inside Sun.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Working capital - Decision criteria
1 By definition, working capital management entails short-term
decisions—generally, relating to the next one-year period—which are reversible. These decisions are therefore not taken on the same
basis as capital-investment decisions (net present value|NPV or related, as above); rather, they will be based on cash flows, or profitability, or both.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Rational pricing - Valuation at initiation
1 To be arbitrage free, the terms of a swap contract are such that, initially,
the Net present value|Net present value of these future cash flows is
equal to zero; see Swap (finance)#Valuation|swap valuation
https://store.theartofservice.com/the-net-present-value-toolkit.html
Government spending - Infrastructure and investment: gross fixed capital formation
1 Infrastructure spending is considered government investment because it will usually save money in the long
run, and thereby reduce the net present value of government
liabilities.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Agency Theory - Options framework
1 At the same time, since equity may be seen as a call option on the value
of the firm, an increase in the variance in the firm value, other
things remaining equal, will lead to an increase in the value of equity,
and stockholders may therefore take risky projects with negative net
present values, which while making them better off, may make the
bondholders worse offhttps://store.theartofservice.com/the-net-present-value-toolkit.html
Business valuation - Income, asset and market approaches
1 Generally, the income approaches determine value by calculating the net present value of
the benefit stream generated by the business (discounted cash flow); the asset-
based approaches determine value by adding the sum of the parts of the business
(net asset value); and the market approaches determine value by comparing the subject company to other companies in the same industry, of the same size, and/or
within the same region
https://store.theartofservice.com/the-net-present-value-toolkit.html
Business valuation - Discount or capitalization rates
1 * In discounted cash flow|DCF valuations, the discount rate, often
an estimate of the cost of capital for the business is used to calculate the
net present value of a series of projected cash flows.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Working capital management - Investment and project valuation
1 These present values are then summed, and this sum net of the
initial investment outlay is the Net present value|NPV
https://store.theartofservice.com/the-net-present-value-toolkit.html
Capital budgeting - Capital Budgeting Definition
1 (1) Corporate management seeks to maximize the value of the firm by investing in projects which yield a positive net present value when
valued using an appropriate discount rate in consideration of risk
https://store.theartofservice.com/the-net-present-value-toolkit.html
Capital budgeting - Capital Budgeting Definition
1 Each potential project's value should be estimated using a discounted
cash flow (DCF) valuation, to find its net present value (NPV)
https://store.theartofservice.com/the-net-present-value-toolkit.html
Capital budgeting - Capital Budgeting Definition
1 Popular methods of capital budgeting include net present value (NPV),
internal rate of return (IRR), discounted cash flow (DCF) and
payback period.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Capital budgeting - Internal rate of return
1 The 'internal rate of return' (IRR) is defined as the Interest rate|discount rate that gives a net present value
(NPV) of zero. It is a commonly used measure of investment efficiency.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Capital budgeting - Equivalent annuity method
1 It is often used when comparing investment projects of unequal
lifespans. For example if project A has an expected lifetime of 7 years,
and project B has an expected lifetime of 11 years it would be
improper to simply compare the net present values (NPVs) of the two
projects, unless the projects could not be repeated.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Capital budgeting - Equivalent annuity method
1 Alternatively the chain method can be used with the net present value|NPV method
under the assumption that the projects will be replaced with the same cash flows each
time. To compare projects of unequal length, say 3 years and 4 years, the projects are
chained together, i.e. four repetitions of the 3 year project are compare to three
repetitions of the 4 year project. The chain method and the EAC method give
mathematically equivalent answers.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Capital budgeting - Real options
1 Real options analysis try to value the choices - the option value - that the managers will have in the future and adds these values to the Net present
value|NPV.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Real options valuation - Applicability of standard techniques
1 ROV is often contrasted with more standard techniques of capital
budgeting, such as discounted cash flow (DCF) analysis / net present
value (NPV)
https://store.theartofservice.com/the-net-present-value-toolkit.html
Real options valuation - Valuation inputs
1 ** spot price: the starting or current Valuation (finance)|value of the
project is required: this is usually based on management's best guess as to the gross value of the project's cash flows and resultant net present
value|NPV;
https://store.theartofservice.com/the-net-present-value-toolkit.html
Capital structure - Agency Costs
1 * 'Asset substitution effect': As D/E increases, management has an increased
incentive to undertake risky (even negative Net present value|NPV) projects. This is
because if the project is successful, share holders get all the upside, whereas if it is
unsuccessful, debt holders get all the downside. If the projects are undertaken, there is a chance of firm value decreasing and a wealth transfer from debt holders to
share holders.https://store.theartofservice.com/the-net-present-value-toolkit.html
Fictitious capital
1 *In terms of mainstream economics|mainstream financial economics, fictitious capital is the net present
value of future cash flows.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Real estate appraisal - Types of value
1 *'Value-in-use', or 'use value' – The net present value (NPV) of a cash flow that an asset generates for a
specific owner under a specific use. Value-in-use is the value to one
particular user, and may be above or below the market value of a property.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Yield (finance) - Real Estate Property
1 Equivalent Yield lies somewhere in between the initial yield and reversionary yield, it
encapsulates the Discounted cash flow|DCF of the property with rents rising (or falling)
from the current annualised rent to the underlying estimated rental value (ERV) less costs that are incurred along the way. The
discount rate used to calculate the net present value (NPV) of the Discounted cash
flow|DCF to equal zero is the equivalent yield, or the Internal rate of return|IRR.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Discounted cash flow
1 All future cash flows are estimated and Discounting|discounted to give their present values (PVs)—the sum
of all future cash flows, both incoming and outgoing, is the net
present value (NPV), which is taken as the value or price of the cash
flows in question
https://store.theartofservice.com/the-net-present-value-toolkit.html
Market value added - Basic formula
1 MVA is the present value of a series of Economic value added|EVA values.
MVA is economically equivalent to the traditional Net present value|NPV measure of worth for evaluating an
after-tax cash flow profile of a project if the cost of capital is used for
discounting.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Working capital management - Quantifying uncertainty
1 This histogram provides information not visible from the static DCF: for
example, it allows for an estimate of the probability that a project has a net present value greater than zero
(or any other value).
https://store.theartofservice.com/the-net-present-value-toolkit.html
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 1973.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Debt to GDP ratio - Applications
1 The World Bank and the IMF hold that “a country can be said to achieve external debt sustainability if it can meet its current and future external debt service
obligations in full, without recourse to debt rescheduling or the accumulation of arrears and without
compromising growth.” According to these two institutions, external debt sustainability can be obtained by a country “by bringing the net present value (NPV) of
external public debt down to about 150 percent of a country’s exports or 250 percent of a country’s
revenues.” [http://www.internationalmonetaryfund.com/external/np/hipc/2001/lt/042001.pdf] High external debt is believed
to have harmful effects on an economy.Bivens, L
https://store.theartofservice.com/the-net-present-value-toolkit.html
External debt - External debt sustainability
1 According to these two institutions, bringing the net present value (NPV) of external public debt down to about 150 percent of a country's exports or 250 percent of a country's revenues
would help eliminating this critical barrier to longer-term debt sustainability.Page 4 in
[http://www.imf.org/external/np/hipc/2001/lt/042001.pdf The Challenge of Maintaining Long-
term External Debt Sustainability], World Bank and International Monetary Fund, April 2001, ii
+48 pp
https://store.theartofservice.com/the-net-present-value-toolkit.html
KOCE-TV - KOCE vs. Daystar
1 A lower court ruled in favor of the college district and the foundation; but on June 23, 2005, the California Court of Appeals ruled that the sale of KOCE was illegal, since the offer
was modified after the end of bidding and because the value of the bid was
not expressed in net present value terms
https://store.theartofservice.com/the-net-present-value-toolkit.html
Intrinsic value (finance) - Real estate
1 In valuing real estate, a similar approach may be used. The intrinsic
value of real estate is therefore defined as the net present value of all future net cash flows which are foregone by buying a piece of real
estate instead of renting it in perpetuity. These cash flows would include rent, inflation, maintenance and property taxes. This calculation
can be done using the Gordon model.https://store.theartofservice.com/the-net-present-value-toolkit.html
Brand equity - Methodologies
1 The royalty relief method involves estimating likely future sales,
applying an appropriate royalty rate to them and then discounting
estimated future, post-tax royalties, to arrive at a Net Present Value (NPV)
https://store.theartofservice.com/the-net-present-value-toolkit.html
Loan modification in the United States - IndyMAC plan
1 #Modify the loan terms based on waterfalls, starting at a front-end 38
percent HTI ratio down to a 31 percent HTI ratio subject to a formal
net present value (NPV) floor.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Loan modification in the United States - Loan modification terms and procedures
1 *Participating loan servicers will be required to use a net present value (NPV) test on
each loan that is at risk of imminent default or at least 60 days delinquent. The NPV test will compare the net present value of cash
flows with modification and without modification. If the test is positive: meaning that the net present value of expected cash flow is greater in the modification scenario: the servicer must modify absent fraud or a
contract prohibition.https://store.theartofservice.com/the-net-present-value-toolkit.html
National Asset Management Agency - The Draft Business Plan
1 The Draft Business Plan looks at sensitivity analysis, indicating that if short and/or long-term interest rates rise, there would be an erosion of the €5 billion positive cash flow to NAMA.
Similarly, if the default rate increases, this cash flow would be
eroded. The document states that an increase of the default rate to 31% would erode in full the net present
value of the positive cash flow.https://store.theartofservice.com/the-net-present-value-toolkit.html
Lost decade (Japan) - Interpretations
1 They suggest that Japan’s sluggish investment activity is likely to be better understood in terms of low
levels of desired capital expenditure and not in terms of credit constraints
that prohibit firms from financing projects with positive net present
value (NPV)
https://store.theartofservice.com/the-net-present-value-toolkit.html
Wealth elasticity of demand - Macroeconomic implications
1 The elasticity has important implications for monetary policy:
Investments with a fixed Yield (finance)|yield (such as a bond
paying coupons at 5%) will increase in net present value as interest rates
fall
https://store.theartofservice.com/the-net-present-value-toolkit.html
Wealth elasticity of demand - Why income and wealth elasticities are separable
1 ** Intertemporal consumption: Nominal gains in stock market
portfolios and other assets tend to have smaller effects on immediate consumption than predicted by the
lifetime-income hypothesis (of Rationality|rational consumption averaging based on Net present value|NPV income expectations).
https://store.theartofservice.com/the-net-present-value-toolkit.html
Gross fixed capital formation - Economic analysis
1 Infrastructure spending is considered government investment because it will usually save money in the long
run, and thereby reduce the net present value of government
liabilities
https://store.theartofservice.com/the-net-present-value-toolkit.html
Income approach - Discounted Cash Flow
1 The Discounted cash flow model is analogous to net present value estimation in finance
https://store.theartofservice.com/the-net-present-value-toolkit.html
Dividend discount model
1 [http://www.investopedia.com/articles/fundamental/04/041404.asp
Investopedia – Digging Into The Dividend Discount Model] In other
words, it is used to value stocks based on the net present value of the
future dividends
https://store.theartofservice.com/the-net-present-value-toolkit.html
United States federal budget - Budget principles
1 The costs of some federal credit and loan programs, according to
provisions of the Federal Credit Reform Act of 1990, are calculated on a net present value basis.The Federal Credit Reform Act was passed as part of the Omnibus
Budget Reconciliation Act of 1990 (P.L
https://store.theartofservice.com/the-net-present-value-toolkit.html
Economy of Mozambique - Macroeconomic review
1 With a high foreign debt (originally $5.7 billion at 1998 net present
value) and a good track record on economic reform, Mozambique was the first African country to receive debt relief under the initial Heavily
Indebted Poor Country (HIPC) Initiative
https://store.theartofservice.com/the-net-present-value-toolkit.html
Return (finance) - Logarithmic or continuously compounded return
1 When the internal rate of return is greater than the cost of capital, (which is also referred to as the
'required rate of return'), the investment adds value, i.e. the net
present value of cash flows, discounted at the cost of capital, is greater than zero. Otherwise, the investment does not add value.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Relationship marketing - Retention
1 (1990) Zero defects: quality comes to services, Harvard Business Review, Sept–Oct, 1990, pp 105–111 that a
5% improvement in customer retention can cause an increase in profitability of between 25 and 85 percent (in terms of net present
value) depending on the industry
https://store.theartofservice.com/the-net-present-value-toolkit.html
Priority review voucher - The mechanism
1 For a company with a top selling drug with a net present value close to $3
billion, the Duke researchers calculated the accelerated approval
could be worth over $300 million
https://store.theartofservice.com/the-net-present-value-toolkit.html
Modified Internal Rate of Return
1 G., Net present value and the rate of return: Implicit and explicit
reinvestment assumptions, The Engineering Economist 33, 1988,
275-302
https://store.theartofservice.com/the-net-present-value-toolkit.html
Modified Internal Rate of Return - Comparing projects of different sizes
1 M., Efficient capital project selection through a yield-based capital
budgeting technique, The Engineering Economist 38(1), 1992, 1-18.Hajdasinski, M., Remarks in the
context of 'The case for the generalized net present value
formula', The Engineering Economist 40(2), 1995, 201-210.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Monte Carlo methods in finance - Overview
1 This distribution allows, for example, for an estimate of the probability that
the project has a net present value greater than zero (or any other
value).[http://www.simularsoft.com.ar/SimulAr1e.htm] See Corporate finance#Quantifying uncertainty|further under Corporate finance.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Payback period - Purpose
1 Alternative measures of return preferred by economists are net
present value and internal rate of return
https://store.theartofservice.com/the-net-present-value-toolkit.html
RNPV
1 In finance, 'rNPV' (risk-adjusted net present value) or 'eNPV' (expected
NPV) is a method to value risky future cash flows. rNPV modifies the
standard NPV calculation of discounted cash flow (DCF) analysis by adjusting (multiplying) each cash
flow by the estimated probability that it occurs (the estimated success
rate). In the language of probability theory, the rNPV is the expected
value.
https://store.theartofservice.com/the-net-present-value-toolkit.html
NPV
1 * Net present value, an economic standard method for evaluating competing long-term projects in
capital budgeting
https://store.theartofservice.com/the-net-present-value-toolkit.html
Minimum acceptable rate of return
1 A common method for evaluating a hurdle rate is to apply the discounted
cash flow method to the project, which is used in net present value
models
https://store.theartofservice.com/the-net-present-value-toolkit.html
Minimum acceptable rate of return - Project analysis
1 When a project has been proposed, it must first go through a preliminary
analysis in order to determine whether or not it has a positive net
present value using the MARR as the discount rate
https://store.theartofservice.com/the-net-present-value-toolkit.html
Annual effective discount rate - Business calculations
1 Businesses normally apply this discount rate by calculating the net present value of the
decision.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Time-weighted return - Internal Rate of Return
1 One of these methods is the internal rate of return. Like the true time-weighted return method, the internal rate of return is also
based on a compounding principle. It is the discount rate that will set the net present
value of all external flows and the terminal value equal to the value of the initial
investment. However, solving the equation to find an estimate of the internal rate of
return generally requires an iterative numerical method.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Z-spread - Definition
1 If these payments are discounted to net present value (NPV) with a
riskless zero-coupon Treasury yield curve, the sum of their values will tend to overestimate the market
price of the MBS
https://store.theartofservice.com/the-net-present-value-toolkit.html
Robert D. Arnott - Writing
1 Using the prism of clairvoyant value - the net present value of all future
cash flows on an investment, which is only known long after-the-fact for stocks in decades past - this paper
and related subsequent paper demonstrate that the market does a superb job of differentiating which stocks deserve premium valuation
multiples, but then pays too much for them
https://store.theartofservice.com/the-net-present-value-toolkit.html
Actuarial reserves
1 An 'actuarial reserve' is a liability equal to the net present value of the future expected
cash flows of a contingent event. In the insurance context an actuarial reserve is
the present value of the future cash flows of an insurance policy and the total liability of
the insurer is the sum of the actuarial reserves for every individual policy.
Regulated insurers are required to keep offsetting assets to pay off this future
liability.https://store.theartofservice.com/the-net-present-value-toolkit.html
Interest rate swap - Structure
1 At the point of initiation of the swap, the swap is priced so that it has a net
present value of zero. If one party wants to pay 50 Basis point|bps
above the par swap rate, the other party has to pay approximately 50 over LIBOR to compensate for this.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Customer retention - Customer lifetime value
1 Customer lifetime value enables an organization to calculate the net
present Value (economics)|value of the Profit (accounting)|profit an
organization will realize on a customer over a given period of time. Retention Rate is the percentage of
the total number of customers retained in context to the customers
that approached for cancellation.https://store.theartofservice.com/the-net-present-value-toolkit.html
CAFM - Sustainability
1 *Forecast sustainability projects’ financial impacts (net present value, internal rate of return, ROI, payback period) and environmental impacts
https://store.theartofservice.com/the-net-present-value-toolkit.html
Mortgage yield
1 In finance, 'mortgage yield' is a measure of yield (finance)|yield of Mortgage-backed
security|mortgage-backed bonds. It is also known as cash flow yield. The mortgage yield,
or cash flow yield, of a mortgage-backed bond is the monthly compounded discounted cash flow|discount rate at which net present value of all
future cash flows from the bond will be equal to the present price of the bond.Choudhry,
Moorad. Capital Market Instruments: Analysis and Valuation, (FT Press, 2002), p. 208.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Social Security reform - Windfall for Wall Street?
1 Austan Goolsbee at the University of Chicago has written a study, The Fees of Private Accounts and
the Impact of Social Security Privatization on Financial Managers, which calculates that, Under
Plan II of the President's Commission to Strengthen Social Security (CSSS), the net
present value (NPV) of such payments would be $940 billion, and, amounts to about one-quarter
(25%) of the NPV of the revenue of the entire financial sector for the next 75 years, and
concludes that, The fees would be the largest windfall gain in American financial history.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Option-adjusted spread - Definition
1 :Take the expected value (mean Net present value|NPV) across the range of all possible rate scenarios when discounting each scenario's actual cash flows with the Treasury yield
curve plus a spread, 'X'. The OAS is defined as the value of 'X' equating the market price of the MBS to its
value in this theoretical framework.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Equivalent annual cost
1 EAC is often used as a decision making tool in capital budgeting
when comparing investment projects of unequal lifespans. For example if project A has an expected lifetime of
7 years, and project B has an expected lifetime of 11 years it
would be improper to simply compare the net present values
(NPVs) of the two projects, unless neither project could be repeated.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Equivalent annual cost
1 EAC is calculated by dividing the Net present value|NPV of a project by the present value of an Annuity (finance theory)|annuity factor. Equivalently,
the NPV of the project may be multiplied by the loan repayment
factor.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Debt overhang
1 This problem emerges, for example, if a company has a new investment
project with positive net present value (NPV), but cannot capture the investment opportunity due to an
existing debt position, i.e., the face value of the existing debt is bigger
than the expected payoff
https://store.theartofservice.com/the-net-present-value-toolkit.html
Debt overhang - Overview
1 Successful bankruptcy reorganizations allow organizations to reduce their debt levels and allow
new private shareholders to bear enough of the gains from new
investments that they will pursue new projects that have positive
expected net present value.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Autism therapies
1 study estimated an average Net present value|discounted lifetime
cost of $ ( dollars, inflation-adjusted from 2003 estimate), with about 10%
medical care, 30% extra education and other care, and 60% lost
economic productivity
https://store.theartofservice.com/the-net-present-value-toolkit.html
Integrated operations - Contents of the term
1 By deploying IO, the petroleum industry draws on lessons from the process industry. This can
be seen in a larger focus on the whole production chain and management ideas imported from the production and process
industry. A prominent idea in this regard is real-time Process optimization|optimization of the
whole value chain, from long term management of the oil reservoir, through capacity allocations
in pipe networks and calculations of the net present value of the produced oil.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Material selection - Cost issues
1 For example, life cycle assessment can show that the net present value of reducing the weight of a car by
1kg averages around $5, so material substitution which reduces the
weight of a car can cost up to $5 per kilogram of weight reduction more
than the original material
https://store.theartofservice.com/the-net-present-value-toolkit.html
Electric car - Total cost of ownership
1 The study compared the lifetime net present value at 2010 purchase and operating costs for the US market with no Government incentives for
plug-in electric vehicles#United States|government subsidies
https://store.theartofservice.com/the-net-present-value-toolkit.html
Idaho State University - Economic developments
1 The Series 2012 Bonds will result in a net present value savings to the University of approximately $3.2
million.ISU Headlines » Idaho State University saves $3.2 million issuing
tax-exempt bonds
https://store.theartofservice.com/the-net-present-value-toolkit.html
Rail franchising in Great Britain - Criticism of the franchising process
1 The winning bidder offered a premium of £1,191 million (net
present value) over the life of the franchise, and the other bidders
offered £636 million, £513 million and £501 million.
https://store.theartofservice.com/the-net-present-value-toolkit.html
Currency swap
1 A 'currency swap' is a foreign-exchange agreement between two institutions to exchange aspects
(namely the Loan|principal and/or interest payments) of a loan in one
currency for equivalent aspects of an equal in net present value loan in
another currency; see foreign exchange derivative
https://store.theartofservice.com/the-net-present-value-toolkit.html
Electricity sector in Honduras - Generation
1 By law, ENEE has the mandate of prioritizing renewable-based
generation when determining the optimal expansion plan. The
condition is that the net present value of sequence including
renewable-based generation must not exceed by more than 10 percent
that of the least-cost expansion plan.World Bank, 2007
https://store.theartofservice.com/the-net-present-value-toolkit.html
CancerVax - Reverse Merger
1 Small, private firms, like Micromet, are less likely to find hiring an
underwriter to be a positive net present value project and hence gain more benefits from going public by a reverse merger rather than an IPO.v
Micromet Inc
https://store.theartofservice.com/the-net-present-value-toolkit.html
Finance & Commerce - Personal finance
1 Using net present value calculators, the financial planner will suggest a
combination of asset earmarking and regular savings to be invested in a
variety of investments
https://store.theartofservice.com/the-net-present-value-toolkit.html
Nationalization of oil supplies
1 Once these countries become the sole owners of these confiscated
resources in violation of contract law, they have to decide how to maximize the net present value of their known
stock of oil in the ground.
https://store.theartofservice.com/the-net-present-value-toolkit.html
For More Information, Visit:
• https://store.theartofservice.com/the-net-present-value-toolkit.html
The Art of Servicehttps://store.theartofservice.com