Join Rudolph Rosenberg for an in-depth discussion in this video Understanding the NPV formula, part of Making Investment Decisions.
…The objective of the NPV formula is to…calculate if an investment is creating value or not.…To achieve that, the formula adds up all the money that is…spent, and all the money that is received as part of that investment.…If there is more money received than money spent, then it leaves…you with a positive result which means that it's a good investment.…There's one tricky piece though to this.…Which is that you cannot simply add up all the…money spent and money received, as part of your project.…Because those inflows and outflows of money, do not occur on the same date.…
You might want to ask me why it matters, since money is money anyway.…Well, the reason is that time changes the value of money.…Let me explain.…Of course, a $1 bill is and will always be a $1 bill.…So how can a $1 bill see its value change, while still being a $1 bill?…The key to this question is in, what you can do with that $1 bill.…Let's take a practical example.…If I give you $1 today. You can go and put it on saving account at…a 2% return per year, and get back $1.02 next 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