"
by Ahmed Vahed
(Oakville, ON, Canada)
What is the significance of NPV?
by Andy
(Framingham, MA, USA)
I would like to calculate a present value of a stream of earnings using the following criteria:
* Discount period is 25 year period;
* Earnings are fixed in 5 year increments;
* Earning also every 5 years (10% increase).
Issue:
What is an appropriate Discount Rate?
* Federal Risk Free Rate;
* Present Borrowing Rate experienced by the Company;
* Compound annual growth rate for the past 25 years;
* Some Other Factor?
Please advise.
Comments for Discount Rate for a Net Present Value Project
|
||
|
||
by Anonymous
If I had $18,000 to invest in a project and the life of the project was 20 years, the single cash inflow at the end of 20 years is $66,000 and the company's discount rate is 20%, how do I find out what the net present value would be?
Answer
The illustration shows how you would use the NPV Calculator for the calculation. The discount rate of 20% over 20 years does not bring much back to present value. A little experiment shows that it would take $690,100 in year 20 (without other cash flows) to obtain a positive net present value.
A prudent person would reject this investment.