Join Rudolph Rosenberg for an in-depth discussion in this video How to choose the rate of return, part of Making Investment Decisions.
…Another key element to calculating NPV, is in…choosing the right rate of return to be used.…And to determine that rate, it is…important to understand what it is representing.…The rate of return, also called the discount rate,…is the return level your project is expected to beat.…If for example, you want to invest in a…project that delivers more than 5% return per year,…then 5% is the rate you need to use.…Then the question is to know how to determine what should be the rate to beat.…
Of course, we all prefer 20% return rates rather than…5% ones, but it's key to stay clear of wishful thinking.…And use some guidelines to define a rate that is realistic, and…that will ensure you select projects that are good fits for you.…First of all, it's a matter of the investment…opportunities that are available to you.…For example, there is one investment opportunity we all have access…to, and this is to put our money on a saving account.…Interest rates on saving accounts vary from bank to bank, so let's…imagine you have an account that delivers 2% of interest per year.…
This course teaches the net present value (NPV) methodology, an investment evaluation formula used by countless publicly traded companies and financial analysts, in a way that makes it accessible and applicable to you—no finance background required. Rudolph Rosenberg explains what investments are, how they are measured, and what makes a good investment. Then he explores the NPV formula in depth, showing you how to evaluate your cash flows, choose a rate of return, and assess the risk of a particular investment. This all culminates in a look at how the principles of investment apply to three real-life scenarios that any individual or company might encounter.
- What is an investment?
- Understanding ROI
- What makes a good investment?
- Using the NPV formula
- Assessing risk
- Applying NPV to real-life situations