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Discount: net present value

In finance (studies and addresses the ways in which individuals, businesses and organizations raise, allocate and use monetary resources over time, taking into account the risks entailed in their projects) and economics, discounting is the process of finding the present value of an amount of cash at some future date, and along with compounding cash forms the basis of time value of money calculations. The discounted value of a cash flow is determined by reducing its value by the appropriate discount rate for each unit of time between the time when the cashflow is to be valued to the time of the cash flow. Most often the discount rate is expressed as an annual rate.

To calculate the net present value of a single cash flow, it is divided by one plus the interest rate for each period of time that will pass. This is expressed mathematically as raising the divisor to the power of the number of units of time.

Net present value (NPV) is a standard method for financial evaluation of long-term projects. Used for capital budgeting, and widely throughout economics, it measures the excess or shortfall of cash flows, in present value (PV) terms, once financing charges are met. All projects with a positive NPV are profitable, however this does not necessarily mean that they should be undertaken since NPV does not account for opportunity cost. Assuming a firm aims to maximise profit, projects should only be undertaken if their NPV is greater than the opportunity cost.

see also Quantity theory of money Hyperbolic discounting Equivalent annual cost Cash accumulation equation ROI - Return on Investment - Rate of return newest formulas Acceleration Calculating a weighted average Pregnancy Date Calculator Fill the yellow fields to see the result in the green fields!   A B C D E 1 find net present value of    Dollar      2 that will be received in    years time      3 Let one assume a    % per year discount rate.      4           5 the net present value (NPV) is about    Dollar      © formularium.org was this helpful ? Charts: change amount : X=B1 / Y=B5 / X from: to: change years : X=B2 / Y=B5 / X from: to: change discount rate : X=B3 / Y=B5 / X from: to: see also: http://en.wikipedia.org/wiki/Discounting http://en.wikipedia.org/wiki/Net_present_value link: http://formularium.org?go=44 (use this link to publish this page) Export:  Excel-Export Script: <script src="http://formularium.org/js.php?go=44"></script> (use this script to include this spreadsheet onto your own webpageExport)   (source: Discount. (2006, October 28). In Wikipedia, The Free Encyclopedia. Retrieved 17:58, November 3, 2006, from http://en.wikipedia.org/w/index.php?title=Discount&oldid=84255562 Net present value. (2006, November 1). In Wikipedia, The Free Encyclopedia. Retrieved 18:03, November 3, 2006, from http://en.wikipedia.org/w/index.php?title=Net_present_value&oldid=85002628) did you know that you can integrate any formula into your own homepage? try it! insert this code into your page: <script src="http://formularium.org/js.php?go=44"></script>