The net present value of an investment is the present value of the investment, minus the amount of money it costs to buy into the investment. All of the investment’s cash flows must occur at the same interval for the calculation to be accurate.
- [Instructor] The net present value of an investment…is the present value of the investment minus the amount…of money it costs to buy into the investment.…All the investment's cash flows must occur…at the same interval for the calculation to be accurate.…I'll show you in this movie how to calculate…the basic NPV of a project.…My sample file is the NPV workbook,…and you can find it in the chapter two folder…of your exercise files collection.…The NPV function requires two arguments.…The first is the rate.…
This is the risk-free rate,…which is the return that you could get…on your investment without risk.…So for example, if you run a company…and you have a product line that sells very well,…but you know there's more demand out there for you,…you could invest in that product line…and get a return of 5.75% in this case.…In many cases, you will use the risk-free rate…that reflects the treasury bonds…for the period of time for your investment.…For example, a 10-year treasury bond might return 2.8%,…whereas a 30-year treasury would return 3.2%,…
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- Calculating the effect of interest rates and inflation
- Finding the arithmetic and geometric means of growth rates
- Calculating the future and present value of an investment
- Calculating loan payments for a fully amortized loan
- Calculating the effect of paying extra principal with each payment
- Finding the number of periods required to meet an investment goal
- Calculating net present value and internal rate of return
- Building a cash tracking worksheet
- Visualizing cash flows using a waterfall chart