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:


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.


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:


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

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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.


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.


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.


Phase–gate model - Effective gating

1 *** Expected profitability (e.g., net present value)


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


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


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.


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


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


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


Reaction vessel

1 Chemical engineers design reactors to maximize net present value for the given

reaction


Copenhagen Metro - Background

1 Despite requiring the highest investment, it had the highest net present value.


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.


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


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):


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


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.


Demurrage currency - Theory

1 In particular, for long-term investment financing, it affects the

dynamics of net present value (NPV) calculations


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.


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.


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.


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.


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:


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).


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)


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.


Cost-benefit analysis - Process

1 # Calculate net present value of project options.


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 - 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.


Nuisance - Remedies

1 In theory, the permanent damage amount should be the net present

value of all future damages suffered by the plaintiff.


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


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.


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


Integrated business planning - Analyses

1 * Optimization to any variable or ratio, including balance sheet, Profit

(accounting)|profitability, Net present value|NPV, cash flow, etc.


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


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


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).


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


Asteroid mining - Financial feasibility

1 Determining financial feasibility is best represented through net present value


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.


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.


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


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.


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


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.


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:


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:


Financial Planning Standards Board - Areas of focus





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


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.


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.


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


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.


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


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.


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


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



1 Each potential project's value should be estimated using a discounted

cash flow (DCF) valuation, to find its net present value (NPV)



1 Popular methods of capital budgeting include net present value (NPV),

internal rate of return (IRR), discounted cash flow (DCF) and

payback period.


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.


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.


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.


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.


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)


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;


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.


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.


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.


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


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.


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).


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.


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


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


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


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)


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.


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)


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


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).


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


Income approach - Discounted Cash Flow

1 The Discounted cash flow model is analogous to net present value estimation in finance


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


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


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


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.


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


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


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


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.


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.


Payback period - Purpose

1 Alternative measures of return preferred by economists are net

present value and internal rate of return


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.


NPV

1 * Net present value, an economic standard method for evaluating competing long-term projects in

capital budgeting


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


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


Annual effective discount rate - Business calculations

1 Businesses normally apply this discount rate by calculating the net present value of the

decision.


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.


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


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


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.


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


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.


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.


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.


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.


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.


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


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.


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


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.


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


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


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


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.


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


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


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


Finance & Commerce - Personal finance





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.


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