Talk:Net present value

message: 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)
thread_title:  Question: 

message: 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)
replies: text: t_0 is the period you already have results for, i.e. the period just past. Do you really want to discount last period's cash flows by the discount rate? You should only discount future cash flows. Am I missing something? --JHP 09:04, 16 March 2007 (UTC)
replies: text: t_0 is the current period.  Often this is the period in which the initial investment is made.  The discount rate at time zero is 1 (i.e., no discount).  The summation in the formula can, therefore, include t=0.  An alternative -- as shown now -- is to start the summation at t=1 and add a separate C0 term.
* --Grieger (talk) 13:35, 17 December 2007 (UTC)
thread_title: '''''Formula'''''

message: 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)
replies: text: This is because you want to know how much money you need today to buy later a product that will be priced 10% more. If the price today is $4545,45, after the period of time which inflation is 10%, the product will cost $5000 ($4545,45 * 1.1). It's just the inverse operation.
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)
replies: text: The math would work, but it would be simplier just to use future value calculations here, e.g. $100/ (1.10)^-3 = $100 * 1.10^3.  NPV is in essence a forward looking tool so the past is irrelevant (sunk costs).  Somebody's thinking though. Smallbones 18:01, 5 March 2006 (UTC)
thread_title: Questions

message: 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)
replies: text: Fixed. Although, I don't know why you subtract last period's cash flows, unless it's because you are spending it to buy capital equipment. That would make sense for capital equipment purchases, but not for financial asset purchases. Perhaps this needs to be explained in the article. --JHP 09:10, 16 March 2007 (UTC)
thread_title:  The controversy of the formula 

message: 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)
replies: text: See effective interest rate and nominal interest rate. The short form is, the math is a bit more complex than that. Not much, though. If your example is 10% annually and compounding twice a year (the intervals), the effective rate will be slightly higher. If I've understood your question correctly.--Gregalton 20:22, 9 August 2007 (UTC)
replies: text:  Yes, thank you. That makes more sense. DRogers 21:47, 9 August 2007 (UTC)
replies: text:  This is actually a quite valid point to make and should perhaps be emphasized in the article, since most (primarilly online) means of calculating NPV, IRR etc. disregard the fact that compound intervals are not static Daniel.gruno (talk) 22:10, 10 February 2008 (UTC)
thread_title:  Discount Rate and Timing 

message: 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)
thread_title:  Dead link 

message: 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)
thread_title:  52 cents 

message: 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)
thread_title:  Graph update? 

message: "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)
thread_title:  Removed some misleading content 

message: Please leave it alone. 84.13.28.161 (talk) 16:21, 4 January 2010 (UTC)
thread_title:  Removed the same misleading content again after someone put it back 

message: 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)
replies: text: Example (not mine originally) was changed to be an annual model. Prior calculations were verified correct.Rick (talk) 14:47, 15 July 2013 (UTC)
thread_title:  Example needs an overhaul 

message: 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. Dubbinu | t | c 18:17, 20 November 2014 (UTC)
thread_title:  Too complicated 

message: 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)
thread_title:  Example too complicated and unclear 

message: , 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:
* Financial Mathematics for Actuaries, Chapter 1: Interest Accumulation and Time Value of Money, page 52 (formula 1.36): http://www.mysmu.edu/faculty/yktse/FMA/S_FMA_1.pdf
* Subject CT1 Financial Mathematics Core Technical, Core Reading for the 2016 exams, Unit 9, page 6 (implicit in examples, noting the undiscounted terms): https://www.liverpool.ac.uk/media/livacuk/maths/docs/IandF_CT1_2016_FINAL_cr_v1.pdf
* MATH1510, Financial Mathematics I, page 38 (3.1.2): http://www1.maths.leeds.ac.uk/~jitse/math1510/notes-all.pdf
I'll revert your edit. -Stelio (talk) 10:48, 6 March 2018 (UTC)
thread_title:  t=0 versus t=1 

message: I encourage other editors to help improve this article.--Jonathan G. G. Lewis 09:32, 26 March 2019 (UTC)
thread_title: Rewrite

message: 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)
thread_title:  Deleted reference to Calculator Soup website