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The formula below is most easier that table
and also used by many ERP systems now a days as a base formula to determine NPV why people make any article their personal matter i added this formula for public's best interest but it is removed many time if anyone think that this formula is improper then discuss here
The article needs an example of NPV of a bond paying 5% yearly coupon for 10 years and a face value of 10,000.00. as well as a zero coupon bond maturing in 10 years and a face value of 10,000.00.
The article needs a discussion of how to compare the two bonds above to
you can view detailed cases on bonds and how to compare them at the following link
http://www.oopine.com/view_topic.php?ti=121
however by the time i will update this article also
Two alternative scenarios for a project involve expensing the up-front costs when incurred or capitalizing them and taking capital cost allowance over future periods. Cash flow values are identical with the exception of income tax payments. When up-front costs are expensed, income taxes are lowered in year 0, and when up-front costs are capitalized, income taxes are lowered in future periods as capital cost allowances are claimed.
NPV of the alternative where up-front costs are expensed is higher than the alternative where costs are capitalized.
Does it make sense to favor one alternative over the other for this reason alone? Would/could companies alter their capital accounting practises based on this reason?
72.2.16.10 ( talk) 15:54, 28 October 2009 (UTC)
The formula was deleted by a graffiti edit on 02:07, 22 June 2009. I restored the formula from the previous edit.
Is it me or is the formula not appearing anymore in the article ? —Preceding unsigned comment added by 80.13.188.216 ( talk) 09:45, 7 September 2009 (UTC)
Corrected the formula. The formula does not match the example and formulas I found in text books. Instead of it should be If not, T0 in the example would be wrong. —The preceding unsigned comment was added by 134.130.104.136 ( talk) 13:49, 22 October 2006 (UTC).
or like
The subtraction of makes no sense, once if it is an outlay. Per definition, one should sum the present value of the cash flow with the outlay or inlay that already exists.
—
Daniel.gruno (
talk) 21:53, 10 February 2008 (UTC)
In principle the formula should be close to what you state, , with the slight alteration, that N is prefered to n (we want a full population of cash flows, not just a random sample). In principle! (explanation below)
Mr. unsigned from 134.130.104.136: Assuming that you meant to include in your formula, plenty of text books list the formula you first submitted (ie Essentials of Corporate Financial Management by Glen Arnold, Pearson Ed. 2007), and the sole reason they cling on to this oh so tedious version of the formula (which clearly is a waste of 2 cm of space which could've been used for other doodles) is to emphasize (for learning purposes) that refers to the initial investments put into the project (or whatever you are calculating). Though I too prefer the shortened version of the formula, I think it remains important for Wikipedia as a source of information for not only us hardcore financial idiots, but also people in the midst of a learning process, for whom the added emphasis of would prove useful.
Furthermore - and yes, this is Nitpicking Extreme - the variable r should actually be a k when dealing with (opportunity) cost of capital, an i when dealing with discounting and r when dealing with the internal rate of return...but I simply cannot be bothered to even try fixing that up. —Preceding
unsigned comment added by
Daniel.gruno (
talk •
contribs) 01:46, 11 February 2008 (UTC)
added "and no cash inflow for the 12 months of Year 0." It makes the example more complete, and highlights that cashflow in applies to Year 0 just as it does for years 1 to 6. The first monkey 12 months of a projects life is Year 0 and many projects do generate cash within the first 12 months of life.
Removed "and no cash inflow for the 12 months of t=0" as previous poster has misunderstood the time periods. This project does generate cashflow in during the first 12 months, and that is what is shown at the end of that first year as the entry for t=1.
The calculations are using 10% per MONTH discount rate, not 10% per year. The whole example should be made a ten year project, which is much more realistic. Doing NPV on a ten month horizon is very rare, since the cost of money/inflation in less than a year is so small (except in very high inflationary economies). If the example is to be month-based, the interest rate is 0.10/12, or 0.0083, for a 10% annual discount rate. Krementz ( talk) —Preceding undated comment added 16:11, 16 April 2012 (UTC).
Why is it $5000 / 1.10^1 and not $5000 * 0.9? If I'm adjusting for inflation and the inflation rate is 10% the money would be worth $5000*0.9 after one year.--
Jerryseinfeld 18:32, 18 July 2005 (UTC)
From memory, NPV is a method of comparing the financial return of a project to the return on the same cash in a term deposit. Liberator 09:38, July 19, 2005 (UTC)
I have looked at several people's attempts to try to explain what NPV is, and nobody gets it right. The best explaination I have found is in Brierly and Myers textbook, the title I forget.
I think it would be better to start with a simple explaination along the lines of -
You have £100 which you place in a savings account for one year. This account has, for the sake of argument, a 10% interest rate. Thus after one year you get £110. Therefore, £110 one year in the future is worth the same as £100 now, at a 10% discount rate.
Actually, this is a description of present value. NPV would be £110-£100=£10.
This article ought to refer to PV, (with a link) and then point out the difference between PV and NPV.
On the
Danish Wikipedia we're having a discussion whether the term also refers to a serie of previous payments - and not only future payments? Personally I haven't meet the expression in such connection. Have anybody else perhaps? --
83.91.231.222 16:01, 31 January 2006 (UTC)
This article is a bit of a mess. can someone go ahead and clean up the bit with the excel sheets? I know it represents the information, but I'm sure a better screenshot/diagram could be used. EmileVictor 00:06, 3 April 2007 (UTC)
I'm looking at the proposal to merge this article with Discounted cash flow from March 2007 with some concern. For those of you who are financial wizzards just remember that there is an engineering aspect to this subject where ordinary people have to understand what you're talking about. KISS is important to the rest of us. Lin 01:39, 21 June 2007 (UTC)
A while ago I had posted a link to the finance wonk's version of net present value calculation at http://finance wonk.blogspot.com/2006/05/present-value-analysis-fundamentals.html
(Remove the space in the first word in the address to use the link, the blacklist kills it here too!)
Recently it was removed and I was notified the site had been blacklisted?
Did I do something wrong? Or is something wrong with the analysis on the destination site?
Looking at the finance wonk page (I haven't reread it in detail) it still looks like a neat runthrough and I like the plots, they do a lot more for me than the equations on the current wikipedia page. Especially the third and fourth ones.
I also like the discussion of how to do NPV in excel, although I see someone has found a possibly better site for that and added it to external links (cool!).
It still looks like the plots contribute a lot, I would add them into the Wikipedia write up except that it would violate copyright since that site obviously owns them (or so I assume).
I read Wikipedia's policy on external links and the link would seem to qualify on the basis of the cool plots alone, and financewonk doesn't ACTUALLY show up on the blacklist ( http://meta.wikimedia.org/wiki/Spam_blacklist) so I can't even tell if there's an overall site problem or what.
Mostly I'm intrigued by the process and hoping the person who did the blacklisting/removal could comment. Is it because the blogspot page has google ads on it? There is hardly any of it and it's kind of out of the way, but I could see if that were a policy.
Full disclosure -- I do know the guy who writes that page. I consider a (small) handful of his work link-worthy, most of it being rather more specific and of limited application.
Have a look at this page
http://www.investopedia.com/terms/n/npv.asp —The preceding unsigned comment was added by 72.52.66.10 ( talk) 13:49, 8 January 2007 (UTC).
—
Daniel.gruno (
talk) 22:03, 10 February 2008 (UTC)
They don't subtract last period's cash flow, they subtract the initial cash flow but place it at the end of the formula.
Nonetheless, the cash flow should not be subtracted, it should be added since any investment is a negative cash flow, and thus adding it will...subtract it! And I'd probably put to the left of the whole sum thing in the formula to show which flows comes first - but I guess it's a chicken-or-the-egg kind of thing.
In the body of the page we talk a lot about interest rate applied to the cash flows. I am not comfortable with that. It implies that the discount factor is somehow directly linked to interest rates. I prefer to use discount factor in the body. I believe that depending on the context of the analysis, the discount factor may or may not be related to some interest rate. Comments? Kenckar 15:31, 26 March 2007 (UTC)
This might be beyond the scope of this article. But if T1 is one year later than T0, and the discount rate I'm using is 10% per year, then if I decided to use six-month intervals (i.e. T1 is six months later than T0), would I then cut the interest rate in half? Or is the math more complex than that? Or should I suck it up and divide into years?
Either way, I think that there should be a mention of how the time and the rate are related. DRogers 16:58, 9 August 2007 (UTC)
The first external link: http://www.odellion.com/pages/online%20community/NPV/financialmodels_npv_definition.htm seems to go to an expired domain? —Preceding unsigned comment added by 90.231.187.94 ( talk) 19:34, 2 March 2008 (UTC)
I'm confused: wouldn't it make more sense to express these equations as continous functions. Granted financial transactions are discrete, but in as much as interest compounds continuously, wouldn't it make more sense to express
as
or am I missing something? Also, it looks like this can be expressed as an inner product:
do finance people think of it that way? —Ben FrantzDale ( talk) 00:19, 24 April 2008 (UTC)
Added a reference to Expected commercial value as Cooper suggests it as a possible replacement for NPV in his "Winning at New Products" book
In the sentence, "The sum of all these present values is the net present value, which equals $8,881.52." Maybe drop the cents in the sentence to be consistent with the PVs in the box above the sentence? As it is, it does not add up. SWAK ! -- Seahappy ( talk) 22:04, 13 March 2009 (UTC)
Shouldn't the graph for discounted and undiscounted cash flows (CumCF.jpg) be updated so it doesn't say "undiscounted cum" and "discounted cum" in the key at the side? Just an observation. Daneel ( talk) 23:33, 21 June 2009 (UTC)
"If NPV is less than 0, which is to say, negative, the project should not be immediately rejected. Sometimes companies have to execute an NPV-negative project if not executing it creates even more value destruction." That would only happen if you had missed out some important issues in your NPV calculations. Could be rephrased as something like: "Not including all the relevant issues in the NPV calculations".
"Another issue with relying on NPV is that it does not provide an overall picture of the gain or loss of executing a certain project. To see a percentage gain relative to the investments for the project, usually, Internal rate of return is used complimented to the NPV method." Sigh. Oh dear. This must have been written by someone who does not really understand DCF. This is precisely why people should use NPV and not IRR to evaluate projects. For example you could have two projects that you have to choose between - you cannot do both. Project A has a 200% IRR, but only has a NPV of £10. Project B has a 5% IRR, but has a NPV of £50. Clearly, Project B is the one you should choose.
"Another issue with relying on NPV is that it does not provide an overall picture of the gain or loss of executing a certain project." Sorry to say but that is complete nonsense - completely untrue - the opposite of the truth in fact. It is true to say this about IRR, but not NPV. Which is why you should use NPV.
Brealey and Myers Principles Of Corporate Finance has an excellent chapter on Why You Should Use NPV and I suggest the original editor reasds that. 84.13.28.161 ( talk) 16:17, 4 January 2010 (UTC)
Please leave it alone. 84.13.28.161 ( talk) 16:21, 4 January 2010 (UTC)
I'm not a finance guy (never took a business or accounting class even), but it seems like the Example section desperately needs an overhaul. As noted above the inputs are for a 12 month project life with a 10% monthly discount rate. That can't be right. Also, the cash flows in the example don't seem to relate to the numbers in the 2 charts except for the t=0. Anybody with Finance 101 under their belt able to straighten this out? — Preceding unsigned comment added by 68.0.45.66 ( talk) 00:24, 23 March 2013 (UTC)
As a example if we obtain 5 million bank loan to invest a 10 million project; when we are calculating NPV do we need to take the instalment repayment and interest payment as an outflow from the project? — Preceding unsigned comment added by Lasith.gunasekara ( talk • contribs) 09:42, 15 July 2013 (UTC)
This article - or at least the introduction - seems too complicated to me. I'm a medical doctor with a PhD, and I need to understand this term for a business proposal. An encyclopedia article introduction should be comprehensible to an interested layman. This one isn't, I'm afraid.
Consider the first sentence: "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."
There's no way that could make sense to anyone but an economist - but I don't think those ought to be the target of the introductory sentence.
Please can someone who understands the concept, rewrite the introduction so that it is comprehensible to people from outside the field?
I suggest focusing on the phrase "better to invest in the project than to do nothing", found buried deep in the example, to explain the concept in accessible terms.
Thanks. Dubbin u | t | c 18:17, 20 November 2014 (UTC)
I agree completely. Time value of money does this right. -- JMT32 ( talk) 00:08, 6 May 2016 (UTC)
There has already been a suggestion that the article is too technical for a layperson. I find the example unnecessarily complicated for someone unfamiliar with the concept, particularly the text describing the example which considers far too many variables to get the point across. Unless anyone objects, I will simplify the example to include an initial outgoing cash flow and identical incoming cash flows (with a nice number, say 10,000). Otherwise, I think the concept of discounting gets lost on a reader. I eat BC Fish ( talk) 19:08, 29 December 2014 (UTC)
@ Spalasamudram:, the discrete summation does indeed start from t=0 rather than t=1 (even though this paradoxically allows for N+1 cashflows in a summation over N years). This is to allow for any initial costs in the project. Example academic references:
I'll revert your edit. - Stelio ( talk) 10:48, 6 March 2018 (UTC)
I encourage other editors to help improve this article.--Jonathan G. G. Lewis 09:32, 26 March 2019 (UTC) — Preceding unsigned comment added by Jonazo ( talk • contribs)
I have a concern about using the Calculator Soup web site as an inline citation. It's an online calculator web site. It gives the author's name but says nothing about his credentials. Before we cite it in this article, I'd like to get some comfort that Calculator Soup satisfies at least some of the Wikipedia guidelines for reliable secondary sources, such as "a reputation for fact-checking and accuracy" and "editorial oversight." I'm going to be bold and delete the citation. But I'm willing to consider other points of view. This is the same issue I raised about a similar site being cited in the Internal Rate or Return article. Cordially, ~~~ BuzzWeiser196 ( talk) 11:50, 16 June 2023 (UTC)
This is the
talk page for discussing improvements to the
Net present value article. This is not a forum for general discussion of the article's subject. |
Article policies
|
Find sources: Google ( books · news · scholar · free images · WP refs) · FENS · JSTOR · TWL |
![]() | This article is rated C-class on Wikipedia's
content assessment scale. It is of interest to the following WikiProjects: | |||||||||||||||||||||||
|
The formula below is most easier that table
and also used by many ERP systems now a days as a base formula to determine NPV why people make any article their personal matter i added this formula for public's best interest but it is removed many time if anyone think that this formula is improper then discuss here
The article needs an example of NPV of a bond paying 5% yearly coupon for 10 years and a face value of 10,000.00. as well as a zero coupon bond maturing in 10 years and a face value of 10,000.00.
The article needs a discussion of how to compare the two bonds above to
you can view detailed cases on bonds and how to compare them at the following link
http://www.oopine.com/view_topic.php?ti=121
however by the time i will update this article also
Two alternative scenarios for a project involve expensing the up-front costs when incurred or capitalizing them and taking capital cost allowance over future periods. Cash flow values are identical with the exception of income tax payments. When up-front costs are expensed, income taxes are lowered in year 0, and when up-front costs are capitalized, income taxes are lowered in future periods as capital cost allowances are claimed.
NPV of the alternative where up-front costs are expensed is higher than the alternative where costs are capitalized.
Does it make sense to favor one alternative over the other for this reason alone? Would/could companies alter their capital accounting practises based on this reason?
72.2.16.10 ( talk) 15:54, 28 October 2009 (UTC)
The formula was deleted by a graffiti edit on 02:07, 22 June 2009. I restored the formula from the previous edit.
Is it me or is the formula not appearing anymore in the article ? —Preceding unsigned comment added by 80.13.188.216 ( talk) 09:45, 7 September 2009 (UTC)
Corrected the formula. The formula does not match the example and formulas I found in text books. Instead of it should be If not, T0 in the example would be wrong. —The preceding unsigned comment was added by 134.130.104.136 ( talk) 13:49, 22 October 2006 (UTC).
or like
The subtraction of makes no sense, once if it is an outlay. Per definition, one should sum the present value of the cash flow with the outlay or inlay that already exists.
—
Daniel.gruno (
talk) 21:53, 10 February 2008 (UTC)
In principle the formula should be close to what you state, , with the slight alteration, that N is prefered to n (we want a full population of cash flows, not just a random sample). In principle! (explanation below)
Mr. unsigned from 134.130.104.136: Assuming that you meant to include in your formula, plenty of text books list the formula you first submitted (ie Essentials of Corporate Financial Management by Glen Arnold, Pearson Ed. 2007), and the sole reason they cling on to this oh so tedious version of the formula (which clearly is a waste of 2 cm of space which could've been used for other doodles) is to emphasize (for learning purposes) that refers to the initial investments put into the project (or whatever you are calculating). Though I too prefer the shortened version of the formula, I think it remains important for Wikipedia as a source of information for not only us hardcore financial idiots, but also people in the midst of a learning process, for whom the added emphasis of would prove useful.
Furthermore - and yes, this is Nitpicking Extreme - the variable r should actually be a k when dealing with (opportunity) cost of capital, an i when dealing with discounting and r when dealing with the internal rate of return...but I simply cannot be bothered to even try fixing that up. —Preceding
unsigned comment added by
Daniel.gruno (
talk •
contribs) 01:46, 11 February 2008 (UTC)
added "and no cash inflow for the 12 months of Year 0." It makes the example more complete, and highlights that cashflow in applies to Year 0 just as it does for years 1 to 6. The first monkey 12 months of a projects life is Year 0 and many projects do generate cash within the first 12 months of life.
Removed "and no cash inflow for the 12 months of t=0" as previous poster has misunderstood the time periods. This project does generate cashflow in during the first 12 months, and that is what is shown at the end of that first year as the entry for t=1.
The calculations are using 10% per MONTH discount rate, not 10% per year. The whole example should be made a ten year project, which is much more realistic. Doing NPV on a ten month horizon is very rare, since the cost of money/inflation in less than a year is so small (except in very high inflationary economies). If the example is to be month-based, the interest rate is 0.10/12, or 0.0083, for a 10% annual discount rate. Krementz ( talk) —Preceding undated comment added 16:11, 16 April 2012 (UTC).
Why is it $5000 / 1.10^1 and not $5000 * 0.9? If I'm adjusting for inflation and the inflation rate is 10% the money would be worth $5000*0.9 after one year.--
Jerryseinfeld 18:32, 18 July 2005 (UTC)
From memory, NPV is a method of comparing the financial return of a project to the return on the same cash in a term deposit. Liberator 09:38, July 19, 2005 (UTC)
I have looked at several people's attempts to try to explain what NPV is, and nobody gets it right. The best explaination I have found is in Brierly and Myers textbook, the title I forget.
I think it would be better to start with a simple explaination along the lines of -
You have £100 which you place in a savings account for one year. This account has, for the sake of argument, a 10% interest rate. Thus after one year you get £110. Therefore, £110 one year in the future is worth the same as £100 now, at a 10% discount rate.
Actually, this is a description of present value. NPV would be £110-£100=£10.
This article ought to refer to PV, (with a link) and then point out the difference between PV and NPV.
On the
Danish Wikipedia we're having a discussion whether the term also refers to a serie of previous payments - and not only future payments? Personally I haven't meet the expression in such connection. Have anybody else perhaps? --
83.91.231.222 16:01, 31 January 2006 (UTC)
This article is a bit of a mess. can someone go ahead and clean up the bit with the excel sheets? I know it represents the information, but I'm sure a better screenshot/diagram could be used. EmileVictor 00:06, 3 April 2007 (UTC)
I'm looking at the proposal to merge this article with Discounted cash flow from March 2007 with some concern. For those of you who are financial wizzards just remember that there is an engineering aspect to this subject where ordinary people have to understand what you're talking about. KISS is important to the rest of us. Lin 01:39, 21 June 2007 (UTC)
A while ago I had posted a link to the finance wonk's version of net present value calculation at http://finance wonk.blogspot.com/2006/05/present-value-analysis-fundamentals.html
(Remove the space in the first word in the address to use the link, the blacklist kills it here too!)
Recently it was removed and I was notified the site had been blacklisted?
Did I do something wrong? Or is something wrong with the analysis on the destination site?
Looking at the finance wonk page (I haven't reread it in detail) it still looks like a neat runthrough and I like the plots, they do a lot more for me than the equations on the current wikipedia page. Especially the third and fourth ones.
I also like the discussion of how to do NPV in excel, although I see someone has found a possibly better site for that and added it to external links (cool!).
It still looks like the plots contribute a lot, I would add them into the Wikipedia write up except that it would violate copyright since that site obviously owns them (or so I assume).
I read Wikipedia's policy on external links and the link would seem to qualify on the basis of the cool plots alone, and financewonk doesn't ACTUALLY show up on the blacklist ( http://meta.wikimedia.org/wiki/Spam_blacklist) so I can't even tell if there's an overall site problem or what.
Mostly I'm intrigued by the process and hoping the person who did the blacklisting/removal could comment. Is it because the blogspot page has google ads on it? There is hardly any of it and it's kind of out of the way, but I could see if that were a policy.
Full disclosure -- I do know the guy who writes that page. I consider a (small) handful of his work link-worthy, most of it being rather more specific and of limited application.
Have a look at this page
http://www.investopedia.com/terms/n/npv.asp —The preceding unsigned comment was added by 72.52.66.10 ( talk) 13:49, 8 January 2007 (UTC).
—
Daniel.gruno (
talk) 22:03, 10 February 2008 (UTC)
They don't subtract last period's cash flow, they subtract the initial cash flow but place it at the end of the formula.
Nonetheless, the cash flow should not be subtracted, it should be added since any investment is a negative cash flow, and thus adding it will...subtract it! And I'd probably put to the left of the whole sum thing in the formula to show which flows comes first - but I guess it's a chicken-or-the-egg kind of thing.
In the body of the page we talk a lot about interest rate applied to the cash flows. I am not comfortable with that. It implies that the discount factor is somehow directly linked to interest rates. I prefer to use discount factor in the body. I believe that depending on the context of the analysis, the discount factor may or may not be related to some interest rate. Comments? Kenckar 15:31, 26 March 2007 (UTC)
This might be beyond the scope of this article. But if T1 is one year later than T0, and the discount rate I'm using is 10% per year, then if I decided to use six-month intervals (i.e. T1 is six months later than T0), would I then cut the interest rate in half? Or is the math more complex than that? Or should I suck it up and divide into years?
Either way, I think that there should be a mention of how the time and the rate are related. DRogers 16:58, 9 August 2007 (UTC)
The first external link: http://www.odellion.com/pages/online%20community/NPV/financialmodels_npv_definition.htm seems to go to an expired domain? —Preceding unsigned comment added by 90.231.187.94 ( talk) 19:34, 2 March 2008 (UTC)
I'm confused: wouldn't it make more sense to express these equations as continous functions. Granted financial transactions are discrete, but in as much as interest compounds continuously, wouldn't it make more sense to express
as
or am I missing something? Also, it looks like this can be expressed as an inner product:
do finance people think of it that way? —Ben FrantzDale ( talk) 00:19, 24 April 2008 (UTC)
Added a reference to Expected commercial value as Cooper suggests it as a possible replacement for NPV in his "Winning at New Products" book
In the sentence, "The sum of all these present values is the net present value, which equals $8,881.52." Maybe drop the cents in the sentence to be consistent with the PVs in the box above the sentence? As it is, it does not add up. SWAK ! -- Seahappy ( talk) 22:04, 13 March 2009 (UTC)
Shouldn't the graph for discounted and undiscounted cash flows (CumCF.jpg) be updated so it doesn't say "undiscounted cum" and "discounted cum" in the key at the side? Just an observation. Daneel ( talk) 23:33, 21 June 2009 (UTC)
"If NPV is less than 0, which is to say, negative, the project should not be immediately rejected. Sometimes companies have to execute an NPV-negative project if not executing it creates even more value destruction." That would only happen if you had missed out some important issues in your NPV calculations. Could be rephrased as something like: "Not including all the relevant issues in the NPV calculations".
"Another issue with relying on NPV is that it does not provide an overall picture of the gain or loss of executing a certain project. To see a percentage gain relative to the investments for the project, usually, Internal rate of return is used complimented to the NPV method." Sigh. Oh dear. This must have been written by someone who does not really understand DCF. This is precisely why people should use NPV and not IRR to evaluate projects. For example you could have two projects that you have to choose between - you cannot do both. Project A has a 200% IRR, but only has a NPV of £10. Project B has a 5% IRR, but has a NPV of £50. Clearly, Project B is the one you should choose.
"Another issue with relying on NPV is that it does not provide an overall picture of the gain or loss of executing a certain project." Sorry to say but that is complete nonsense - completely untrue - the opposite of the truth in fact. It is true to say this about IRR, but not NPV. Which is why you should use NPV.
Brealey and Myers Principles Of Corporate Finance has an excellent chapter on Why You Should Use NPV and I suggest the original editor reasds that. 84.13.28.161 ( talk) 16:17, 4 January 2010 (UTC)
Please leave it alone. 84.13.28.161 ( talk) 16:21, 4 January 2010 (UTC)
I'm not a finance guy (never took a business or accounting class even), but it seems like the Example section desperately needs an overhaul. As noted above the inputs are for a 12 month project life with a 10% monthly discount rate. That can't be right. Also, the cash flows in the example don't seem to relate to the numbers in the 2 charts except for the t=0. Anybody with Finance 101 under their belt able to straighten this out? — Preceding unsigned comment added by 68.0.45.66 ( talk) 00:24, 23 March 2013 (UTC)
As a example if we obtain 5 million bank loan to invest a 10 million project; when we are calculating NPV do we need to take the instalment repayment and interest payment as an outflow from the project? — Preceding unsigned comment added by Lasith.gunasekara ( talk • contribs) 09:42, 15 July 2013 (UTC)
This article - or at least the introduction - seems too complicated to me. I'm a medical doctor with a PhD, and I need to understand this term for a business proposal. An encyclopedia article introduction should be comprehensible to an interested layman. This one isn't, I'm afraid.
Consider the first sentence: "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."
There's no way that could make sense to anyone but an economist - but I don't think those ought to be the target of the introductory sentence.
Please can someone who understands the concept, rewrite the introduction so that it is comprehensible to people from outside the field?
I suggest focusing on the phrase "better to invest in the project than to do nothing", found buried deep in the example, to explain the concept in accessible terms.
Thanks. Dubbin u | t | c 18:17, 20 November 2014 (UTC)
I agree completely. Time value of money does this right. -- JMT32 ( talk) 00:08, 6 May 2016 (UTC)
There has already been a suggestion that the article is too technical for a layperson. I find the example unnecessarily complicated for someone unfamiliar with the concept, particularly the text describing the example which considers far too many variables to get the point across. Unless anyone objects, I will simplify the example to include an initial outgoing cash flow and identical incoming cash flows (with a nice number, say 10,000). Otherwise, I think the concept of discounting gets lost on a reader. I eat BC Fish ( talk) 19:08, 29 December 2014 (UTC)
@ Spalasamudram:, the discrete summation does indeed start from t=0 rather than t=1 (even though this paradoxically allows for N+1 cashflows in a summation over N years). This is to allow for any initial costs in the project. Example academic references:
I'll revert your edit. - Stelio ( talk) 10:48, 6 March 2018 (UTC)
I encourage other editors to help improve this article.--Jonathan G. G. Lewis 09:32, 26 March 2019 (UTC) — Preceding unsigned comment added by Jonazo ( talk • contribs)
I have a concern about using the Calculator Soup web site as an inline citation. It's an online calculator web site. It gives the author's name but says nothing about his credentials. Before we cite it in this article, I'd like to get some comfort that Calculator Soup satisfies at least some of the Wikipedia guidelines for reliable secondary sources, such as "a reputation for fact-checking and accuracy" and "editorial oversight." I'm going to be bold and delete the citation. But I'm willing to consider other points of view. This is the same issue I raised about a similar site being cited in the Internal Rate or Return article. Cordially, ~~~ BuzzWeiser196 ( talk) 11:50, 16 June 2023 (UTC)