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Net present value

• Abbreviated NPV. The present value of the expected future cash flows minus the cost.

• Abbreviated NPV. A sophisticated capital budgeting technique; found by subtracting a project's initial investment from the sum of the present value of its cash inflows discounted at a rate equal to the firm's cost of capital.

• NPV shows the change in wealth as a result of taking a project. NPV is computed as the discounted cash flows. To maximize wealth, take all projects with positive NPV and reject all projects with negative NPV.

• Is one of the building block processes for finance. It provides a methodology for evaluating and pricing securities and projects. In a simple case it is the discount mechanism for a zero coupon security. Here, there is one payment predicated either on interest or principal. By knowing the time left to maturity, assuming no option features, and knowing the discount rate, one can price or evaluate the zero coupon. Pricing bonds is an extension of this process. Now, instead of evaluating, one payment, there is an entire interest and principal payment stream. For equities, the process evaluates expected cash or dividend flows and the residual value of the enterprise. Complexity arises when there are multiple discount rates (bids and offers), yield curve shapes, and credit differences. Even the selection of discrete, compounding or accretion modeling can make a substantial impact on the value of a simple zero coupon bond.

 
 

Follow this link for all the terms related to netvalue.

 
 Embedded terms in definition
 Bond
Capital budgeting
Capital budget
Capital
Cash flow
Cash
Change
Compounding
Cost of capital
Coupon bond
Coupon
Credit
Discount rate
Discounted cash flow
Discount
Dividend
Expected future cash flows
Extension
Finance
Future
Initial investment
Interest
Maturity
Modeling
Option
Present value
Principal
Residual value
Securities
Security
Take
Time
Yield curve
Yield
Zero coupon bond
 
 Related Terms
 
Adjusted present value
Annualized net present value anpv approach
Assessed value
Bond value
Book value
Book value per share
Book value weights
Carrying value
Cash surrender value
Change in net working capital
Conversion or stock value
Conversion value
Current principal value
Economic value added
Exercise value
Expected value
Expected value of a return
Expected value of perfect information
Extraordinary positive value
Extrinsic value
Face value
Face value of a bond
Fair value
Fair value difference
Firm's net value of debt
Future value
Future value interest factor
Future value interest factor for an annuity
Interest discounted annually present value of reversion
Interest impact on present value of ordinary annuity of 1 per period
Intrinsic value
Intrinsic value common stock
Intrinsic value of a firm
Intrinsic value of an option
Intrinsic value warrant
Investment value
Liquidation value
Liquidation value per share
Loan value
Market value
Market value ratios
Market value weighted index
Market value weights
Maturity value
Net
Net adjusted present value
Net advantage of refunding
Net advantage to leasing
Net advantage to merging
Net asset value
Net assets
Net benefit to leverage factor
Net book value
Net cash balance
Net cash flow
Net change
Net coupon
Net domestic product
Net earnings
Net errors and omissions
Net financing cost
Net float
Net income
Net income before taxes
Net interest margin
Net investment
Net lease
Net operating losses
Net operating margin
Net period
Net position
Net present value approach
Net present value of future investments
Net present value of growth opportunities
Net present value profiles
Net present value rule
Net proceeds
Net profit
Net profit margin
Net profits rule
Net sales
Net salvage value
Net working capital
Net working capital recapture
Net worth
Original face value
Par value
Par value stocks
Parity value
Present value
Present value factor
Present value interest factor
Present value interest factor for an annuity
Present value of a future payment
Present value of growth opportunities
Price value of a basis point
Relative value
Replacement value
Residual value
Safety net return
Salvage value
Standardized value
Stated value
Straight bond value
Straight value
Surrender value
Terminal value
Time value
Time value of an option
Time value of money
Uniform net capital rule
Unit value
Utility value
Value added tax
Value additivity principal
Value at risk
Value at risk model
Value date
Value dating
Value fund or value stocks
Value funds
Value line financial strength
Value line safety
Value manager

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