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How Much Is Next Year's Money Worth Today? Double Checking From Value Today To Next Year

The document contains examples of calculating present value and net present value (NPV) using different interest rates. It shows how to calculate the value today of cash flows occurring in future years. It also contains an example of using the NPV function in a spreadsheet to calculate NPV and find the break-even point.

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amaresh mahapatra
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21 views7 pages

How Much Is Next Year's Money Worth Today? Double Checking From Value Today To Next Year

The document contains examples of calculating present value and net present value (NPV) using different interest rates. It shows how to calculate the value today of cash flows occurring in future years. It also contains an example of using the NPV function in a spreadsheet to calculate NPV and find the break-even point.

Uploaded by

amaresh mahapatra
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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How much is next year's money worth today?

Double Checking from Value t

Interest Rate Value in +1 year Value today Interest


5.0% $ 1,000 $ 952 $ 48
12.0% $ 645 $ 576 $ 69
17.0% $ 1,700 $ 1,453 $ 247
13.5% $ 16,000,000 $ 14,096,916 $ 1,903,084
Checking from Value today to next year

Today Next year


$ 952 $ 1,000
$ 576 $ 645
$ 1,453 $ 1,700
$ 14,096,916 $ 16,000,000
Calculating Net Present Value of cashflow step by step

Year 1 2 3 4
Cost ($800,000)
Benefit $200,000 $200,000 $200,000
Net ($800,000) $200,000 $200,000 $200,000

Interest Rate 10%

Present Value Year 3 as year 2 Year 4 as year 3 Year 5 as year 4


Year 1 ($800,000)
Year 2 $181,818
Year 3 $165,289 $181,818
Year 4 $150,263 $165,289 $181,818
Year 5 $136,603 $150,263 $165,289 $181,818

NPV ($166,027)

Cross check using spreadsheet NPV function

NPV ($166,027)
5

$200,000
$200,000
Calculating break-even using NPV function

Year 1 2 3 4
Cost ($800,000)
Benefit $200,000 $200,000 $200,000
Net ($800,000) $200,000 $200,000 $200,000

Interest Rate 10%

NPV (£41,843)

Year 1 2 3 4
Cost ($800,000)
Benefit $200,000 $200,000 $200,000
Net ($800,000) $200,000 $200,000 $200,000

Interest Rate 10%

NPV $71,052
5 6

$200,000 $200,000
$200,000 $200,000

5 6 7

$200,000 $200,000 $200,000


$200,000 $200,000 $200,000
NPV Exercise 1

Year 1 2 3 4 5
Cost ($500,000)
Benefit $60,000 $120,000 $150,000 $300,000
Net ($500,000) $60,000 $120,000 $150,000 $300,000

Interest Rate 10%

NPV
calculation below to show how($28,680)
value Present Value of each cashflow reduces, as it
gets further away

Present Value Year 3 as year Year 4 as year Year 5 as year 4


Year 1 ($500,000)
Year 2 $54,545
Year 3 $99,174 $109,091
Year 4 $112,697 $123,967 $136,364
Year 5 $204,904 $225,394 $247,934 $272,727

NPV ($28,680)

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