Net present value/Tutorials: Difference between revisions
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The '''net present value''' of | The '''net present value''' of an investment generating cash flows C during n years is given by: | ||
::::<math>\mbox{V} = \sum_{t=1}^{n} \frac{C_t}{(1+r)^{t}}</math> | ::::<math>\mbox{V} = \sum_{t=1}^{n} \frac{C_t}{(1+r)^{t}}</math> | ||
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*<math>t</math> is the time of the cash flow <br> | *<math>t</math> is the time of the cash flow <br> | ||
*<math>r</math> is the [[discount rate]] <br> | *<math>r</math> is the [[discount rate]] <br> | ||
*<math>C_t</math> is the net cash flow (the amount of cash) in year t | *<math>C_t</math> is the net cash flow (the amount of cash) in year t <br> | ||
Revision as of 02:09, 26 February 2008
The net present value of an investment generating cash flows C during n years is given by:
Where
- is the time of the cash flow
- is the discount rate
- is the net cash flow (the amount of cash) in year t
The net present expected value, E of a project having a probability P of a single outcome whose net present value is V is given by:
- E = PV
Where there are multiple possible outcomes y = 1 ...n with probabilities Py and present values Vy,
then the net present expected value is given by:
