Overview

In this lesson

1. 0:00 Net Present Value Overview
2. 0:50 NPV Calculation Steps
3. 2:02 Adjusting NPV for Inflation and Tax

About this lesson

NPV represents the net cash position of an investment expressed in present terms, helping you determine whether an investment is worth undertaking based on whether the result is positive or negative. You'll work through the three core steps of NPV calculation: identifying relevant incremental cash flows and their timings, obtaining an appropriate discount rate (typically the cost of capital), and discounting all cash flows to calculate the net present value. Investments with positive NPV should generally be pursued, as this indicates value creation. The session also introduces important refinements to basic NPV analysis. While the discount rate already accounts for the time value of money, real-world calculations must also consider inflation's impact on cash flows and how gains or losses affect the company's tax position. Understanding these nuances is essential, as full NPV calculations commonly appear as section C style questions in your exam, requiring you to integrate multiple layers of financial analysis into a single comprehensive answer.

Duration: 3m