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John Moffat.
John Moffat.-
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surajsusheel
- Topics: 9
- Replies: 6
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Greetings of the day,
In this question the npv is 0 so they took PV of future cash flows at 15 and discounted it for 3 years, my question is, if NPV was suppose 30, we would add 15+30 and then would we discount it for 3 years or 45 itself would be the Pa?
John Moffat
- Topics: 57
- Replies: 49611
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No.
The NPV is zero and so the PV of the future cash flows less the PV of the 15M is zero. Therefore the PV of the future cash flows must be equal to the PV of 15M.
If the NPV has been 30, then the PV of the future cash flows less the PV of 15M would be equal to 30. So the PV of the future cash flows would be equal to 30 + the PV of 15M.
ranganaherath
- Topics: 24
- Replies: 127
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Hi sir,
” If the NPV has been 30, then the PV of the future cash flows less the PV of 15M would be equal to 30. So the PV of the future cash flows would be equal to 30 + the PV of 15M ”
Please correct me if I’m wrong so for Pa we always have to use the PV of cash *inflows* right?
Which is why you have added the PV of the cash *outflow* to the NPV?
This BSOP model is giving me headaches and is so annoying. 🙁
Thanks in advance
John Moffat
- Topics: 57
- Replies: 49611
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Yes – Pa is the PV of the future flows.
ranganaherath
- Topics: 24
- Replies: 127
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Sorry I need to break t down for myself cause I’ve read different on Google and it got me confused.
So let’s say if there is a cash inflow of 7 and an out flow of 5 in the same year. We take the present value of the net amount which is 2 or do we take the present value of 7 only.
Sorry you have to repeat yourself but just needed this confirmation cause it’s not letting me sleep 🙂
John Moffat
- Topics: 57
- Replies: 49611
- ☆☆☆☆☆
You take the PV of the net flow (of 2 in your example).
surajsusheel
John Moffat
ranganaherath
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