Understanding Net Present Value
the net present value is the value of a specific stream of future cash flows presented in today's dollars. a project like a new factory or an extra ? typically means cash now in order to receive more money in the future. the net present value can be calculated by comparing the initial cost of a project to the total value of future revenue that project creates. net present values are used to determine whether a project is worth doing. dan ? dan's pizza shop is considering purchasing a new pizza oven. dan's profit per pizza is $5. the oven will allow ? to make and deliver 1,000 more pizzas per year. however, the oven costs $20,000 and will only last for six years. to evaluate the purchase of the oven, dan calculates the net present value of the project. the oven costs $20,000 in the current year. the incoming cash flows created by the new oven are calculated on a yearly basis. the oven will ? $5,000 that's $5 times 1,000 pizzas in revenue to dan's business every year for six years. for just because the new oven will make $30,000 for dan of the next six years doesn't mean that how much it's worth today. a discount rate is applied to this revenue so that comparison can be made against an alternative investment like a $20,000 bond that could be bought instead of another. the discount rates used are specific to each business. although applying the discount rate will make the project look much less profitable than simply calculating how much profit ? generate over five years, projects with positive net present value should be carried out. but projects with negative net present value should be rejected. net present value is one of many metrics that companies use to decide where they should spend their money.
- net present value・・・割引現在価値→https://ja.wikipedia.org/wiki/%E5%89%B2%E5%BC%95%E7%8F%BE%E5%9C%A8%E4%BE%A1%E5%80%A4
- discount rate・・・割引率