NPV of Project = !-- Initial Investment

CFt = Cash flow in period t r = Discount rate N = Life of the project Thus, the net present value of a project with the cash flows depicted in Figure 5.3 and a discount rate of 12% can be written as:

Net Present Value (NPV): The net present value of a project is the sum of the present values of the expected cash flows on the project, net of the initial investment.

Once the net present value is computed, the decision rule is extremely simple since the hurdle rate is already factored in the present value.

Decision Rule for NPV for Independent Projects If the NPV > 0 -> Accept the project

Note that a net present value that is greater than zero implies that the project makes a return greater than the hurdle rate. The following examples illustrate the two approaches. §2»

^ This spreadsheet allows you to estimate the NPV from cash flows to the firm on a project

Retirement Planning For The Golden Years

Retirement Planning For The Golden Years

If mutual funds seem boring to you, there are other higher risk investment opportunities in the form of stocks. I seriously recommend studying the market carefully and completely before making the leap into stock trading but this can be quite the short-term quick profit rush that you are looking for if you am willing to risk your retirement investment for the sake of increasing your net worth. If you do choose to invest in the stock market please take the time to learn the proper procedures, the risks, and the process before diving in. If you have a financial planner and you definitely should then he or she may prove to be an exceptional resource when it comes to the practice of 'playing' the stock market.

Get My Free Ebook

Post a comment