Discount factor – NPV

This topic has 6 replies, 3 voices, and was last updated 12 years ago by jofayo.

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May 21, 2014 at 9:14 am #169814
atab
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Hi,

If you are given a discount factor of 12.5% in a NPV calculation, how do you go about using the present value table please?

Thanks!
May 21, 2014 at 10:46 am #169837
Ken Garrett
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You can’t use tables and you will have to calculate discount factors from first principles. So for a rate of 12.5 (where ^ means raise to the power):

Yr 1 factor = 1/(1 +0.125)^1
Yr 2 factor = 1/(1 +0.125)^2
Yr 3 factor = 1/(1 +0.125)^3

etc
May 21, 2014 at 1:00 pm #169898
atab
Member
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Thank you.

Therefore the results would be:

Yr 1 = 0.888
Yr 2 = 0.790
Yr 3 = 0.702

Correct?
May 28, 2014 at 8:15 am #171363
atab
Member
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I’m asking as the answer says differently but I do not know how to calculate it any other way…
May 28, 2014 at 9:24 am #171372
Ken Garrett
Keymaster
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Your calculations are correct.
May 28, 2014 at 3:19 pm #171426
atab
Member
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Great thank you!
June 4, 2014 at 3:38 pm #173774
jofayo
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Thank you so much.
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