Avimanyu Datta TIME VALUE FOR MONEY Time Value
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Avimanyu Datta TIME VALUE FOR MONEY
Time Value of Money based on: Net Economic Benefits One Time Fixed Cost Estimation of Time Value of Money is as good as the estimation of the four antecedents Time Value of Money Discounted Rate* Recurring Cost * Discounted Rate can be different for Benefits and Cost. We will assume they are same
Compute Present Value of Benefits Given Net Economic Value (from year 1 onwards) = 40, 000 Assume Discounted Rate is 10% Assume Window of time frame is 5 years Present Value of Benefits for year n= 40, 000* (1/(0. 1+1)^n). Thus, For Year 1 the value will be 40, 000 *. 91 = 36363. 64 For Year 2 the value will be 40, 000 *. 83 = 33057. 85
Compute Net Present Value of Benefits For Year 0 NPV of Benefits = PV of Benefits. For Year 1 and beyond NPV of Benefits can be computed using : NPV of Year N = NPV (n-1)+ PV (n) NPV = PV NPV (n) = NPV (n-1)+ PV (n)
Compute Present Value of Costs Assume Fixed Cost = 32000 Assume Window of time frame is 5 years Recurring cost from Year 1 onwards = 25000 Assume Discounted Rate is 10% Present Value of Recurring for year n= 25, 000* (1/(0. 1+1)^n). Thus, For Year 1 the value will be 25, 000 *. 91 = 22727. 27 For Year 2 the value will be 25, 000 *. 083 = 20661. 16
Compute Net Present Value of Costs For Year 0 NPV of Costs = One Time Fixed Cost For Year 1 and beyond NPV of Costs NPV of Cost for Year N = NPV (n-1)+ PV (n) NPV = One Time Cost NPV (n) = NPV (n-1)+ PV (n)
Overall NPV and Overall ROI Overall NPV = NPV (benefits)- NPV (Costs) Overall ROI = Overall NPV / NPV (Costs) NPV (benefits)- NPV (Costs) Overall NPV / NPV (Costs)
Break. Even Analysis Yearly NPV Cash Flow: (PV of benefits - PV of recurring Costs) Overall NPV Cash Flow: (NPV of all benefits. NPV of all Costs Break Even Ratio Use the first year of positive cash flow to calculate the break even fraction : (Yearly NPV Cash Flow - Overall NPV Cash Flow)/ Yearly NPV Cash Flow
Break. Even Analysis (PV of benefits - PV of recurring Costs) (Yearly NPV Cash Flow - Overall NPV Cash Flow)/ Yearly NPV Cash Flow Overall NPV Cash Flow: (NPV of all benefits- NPV of all Costs)
