NPV calculations based on cashflow

Discussion in 'Cashflow forum' started by Alex1211, Dec 12, 2017.

  1. Alex1211

    Alex1211 UKBF Newcomer Free Member

    Posts: 3 Likes: 0
    Hi guys,

    Could you help me out as I am so terrible at math.

    I am thinking of opening a new small business and I was trying to calculate the NPV by myself but got stock.

    We already got predicted cashflows as follows:
    Investment - £1,000
    Year 1 - £1,500
    Year 2 - £1,750
    Year 3 - £2,200
    Year 4 - £2,650
    Year 5 - £2,900

    Anyone can help with the NPV calculation?

    Many thanks
     
    Posted: Dec 12, 2017 By: Alex1211 Member since: Dec 12, 2017
    #1
  2. cjd

    cjd UKBF Legend Full Member - Verified Business

    Posts: 15,203 Likes: 2,999
    Ah, someone wanting their homework done for them.

    Shove it in excel - but you'll need your cost of capital or an interest rate to do anything.

    But whatever the the rate, the NPV is going to be high as you make a positive NPV in the first year, probably c£9,000.
     
    Posted: Dec 13, 2017 By: cjd Member since: Nov 23, 2005
    #2
  3. Alex1211

    Alex1211 UKBF Newcomer Free Member

    Posts: 3 Likes: 0
    Please do not offend me... I spent 3,5 hours last night trying to figure out how to calculate NPV without the cost of capital or discount rate. I was trying to calculate IRR and came to like 166%... this task is a nightmare and believe me I am not trying to get someone to do my homework,.. just asking for help.
     
    Posted: Dec 13, 2017 By: Alex1211 Member since: Dec 12, 2017
    #3
  4. Mark T Jones

    Mark T Jones UKBF Enthusiast Free Member

    Posts: 1,417 Likes: 350
    As CjD has said, there isn't enough information to give an answer. Also as he said, Exell can offer NPV calcs if you have the right information.

    Other than NPV, which isn't a usual calculation in these circumstances, what are you actually trying to establish?
     
    Posted: Dec 13, 2017 By: Mark T Jones Member since: Nov 4, 2015
    #4
  5. Alex1211

    Alex1211 UKBF Newcomer Free Member

    Posts: 3 Likes: 0
    I understand and I think so too. It is one small piece of my big coursework. I have been financially analysing and doing ratios etc for a business.

    The last bit is stating that we want to open an office in China and I am asked to calculate NPV based on the cashflow amounts above.

    When I was trying to figure it out, i tried to calculate IRR then discount rate, I tried myself, in excel and online calculators but all came to 166% which is way to high for a discount rate...

    If I could just get help to get the cost of capital or the discount rate right.... the only think it says is that the investors want at least 40% return but I do not think that relevant to the calculation.

    I would really appreciate if someone could quickly help out.
     
    Posted: Dec 13, 2017 By: Alex1211 Member since: Dec 12, 2017
    #5
  6. Mark T Jones

    Mark T Jones UKBF Enthusiast Free Member

    Posts: 1,417 Likes: 350
    To the best of my knowledge the variables are

    Present value
    Future value
    Amount
    How many payments
    Frequency of payments
    Interest / discount rate

    You need 4 out of the 5 to get a meaningful figure

    You also need to factor in whether payments are in advance or in arrears
     
    Posted: Dec 13, 2017 By: Mark T Jones Member since: Nov 4, 2015
    #6
  7. cjd

    cjd UKBF Legend Full Member - Verified Business

    Posts: 15,203 Likes: 2,999
    Well it is going to be very high isn't?

    Like I said before, your revenue exceeds your costs in the first year regardless of what TDR you use so when you add in the discounted revenue for the other years it's going to have a huge IRR.

    Use the NPV calculator in Excel, tell us what you get.
     
    Posted: Dec 13, 2017 By: cjd Member since: Nov 23, 2005
    #7