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paryas.bhatia
Member
I haven't studied CT-1 and therefore I am facing difficulty in net present value (NPV). Please provide me with some idea so that I can overcome such problem.
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Hobbs
Member
The NPV is the value _now_ of all previous and future cashflows.
If you're sitting in a fortnight, I suspect you're doomed.
If you're sitting in a fortnight, I suspect you're doomed.
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Margaret Wood
Member
If you're thinking of investing in a project, you want an idea of its profitability, so you estimate the costs that you are likely to incur and the revenues that you are likely to earn over the whole life of the project.
You then discount these cashflows to find the present value of them. This discounting takes into account the economic significance of time. For example, if the interest rate is 10%, £110 next year is worth the same as £100 now, and £121 is two years' time is worth the same as £100 now.
You then add up the present value of all future cashflows (+ for revenues and - for costs) to give the NPV. If this is positive, the project is profitable (at the discount rate that has been used).
You then discount these cashflows to find the present value of them. This discounting takes into account the economic significance of time. For example, if the interest rate is 10%, £110 next year is worth the same as £100 now, and £121 is two years' time is worth the same as £100 now.
You then add up the present value of all future cashflows (+ for revenues and - for costs) to give the NPV. If this is positive, the project is profitable (at the discount rate that has been used).
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paryas.bhatia
Member
Thanks a lot Sir for the help.