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Net present value |
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Net present valueSame as present value, being sure to include (negative) payments as well as (positive) receipts.Net present valueA calculation which is based on the idea that £1 received in ten years' time is not worth as much as £1 received now because the £1 received now could be invested for those ten years and compound into a higher value.The NPV calculation establishes what the value of future earnings is in today's money. To do the calculation you apply a discount % rate to the future earnings. The further out the earnings are (in years) the more reduced their present value is.NPV is at the heart of securities analysis. Analysts use predictions of a company's future earnings and dividend payments, appropriately discounted back to current value, to establish a 'fundamental' value for the shares. If the current share price is below that value, then the shares are, on the face of it, attractive, If lower, they are 'overvalued'. In practice the analysis is more sophisticated, but it is based on the concept of NPV.Similar MatchesPresent Value Index (PVI)Present Value Index (PVI)The ratio of the NPV of a project to the initial outlay required for it. The index is an efficiency measure for investment decisions under capital rationing. Net present value (NPV)Net present value (NPV)The present value of the expected future cash flows minus the cost. Present valuePresent valueThe amount of cash today that is equivalent in value to a payment, or to a stream of payments, to be received in the future. To determine the present value, each future cash flow is multiplied by a present value factor. For example, if the opportunity cost of funds is 10%, the present value of $100 to be received in one year is $100 x [1/(1 + 0.10)] = $91. Net present value ruleNet present value ruleAn investment is worth making if it has a positive NPV Projects with negative NPVs should be rejected. Company representative (tied agent)Company representative (tied agent)A financial services sales rep, authorised to give financial advice on life assurance, pensions and unit trusts, but only allowed to recommend products from his/her employer. Unlike, IFAs, therefore, tied agents cannot be assumed to give impartial advice.Under the Financial Services Act 1986 all financial advisers must tell prospective clients whether they are tied agents or independent, so that the client knows what kind of advice he is getting.Tied agents are regulated by the Financial Services Authority (FSA). Further SuggestionsNet present value of growth opportunitiesAdjusted present value (APV) Proportional representation Net adjusted present value Present State Registered Representative Present value Registered representative Present value factor AIMR Performance Presentation Standards Implementation Committee Appointed representative Present value of growth opportunities |
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