How do I calculate the NPV of a company project
How do I calculate the NPV of a company project
You calculate the NET PRESENT VALUE
by matching the outflow at the beginning with all the returns discounted to the present.
An interest rate has to be assumed.
Example:-
Purchase of Equipment = 20,000
Returns over the next five years.
Year 1 5,000
Year 2 5,000
Year 3 5,000
Year 4 5,000
Year 5 5,000
You calculate the present value of the above
5 lots of 5,000, say at 10% Cost of Capital.
You total the 5 calculations and subtract the
original 20,000.
This is a technique in Capital Budgeting decisions as to the choice of alternative
capital investments.
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