Net present value
You'll learn what net present value is, why it's the theoretically superior investment appraisal technique, and how to calculate it to make sound financial decisions.
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In this lesson
- 0:00 Introduction to Net Present Value
- 0:54 NPV Calculation and Decision Rules
- 2:24 Worked Example with Simple Cash Flows
- 6:00 Level Cash Flows: Annuities and Perpetuities
- 8:15 Calculating Present Value of Normal Annuities
- 13:28 NPV Example Using Annuity Factors
- 15:21 Handling Delayed Annuities
- 19:42 Perpetuity Calculations and Applications
About this lesson
This video covers the core NPV calculation method—discounting all project cash flows back to present value using a discount rate—and shows you how to interpret the results: accept projects with positive NPV, reject those with negative NPV, and choose between competing projects by selecting the highest NPV. You'll also explore special cash flow types including annuities (level cash flows over a finite period), delayed annuities (where payments begin later in the project), and perpetuities (infinite level cash flows), with practical shortcuts using annuity factors to speed up calculations. This is essential content for FM, AFM, and performance management papers where investment appraisal questions regularly appear.
Duration: 23m
Transcript
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