In Industrial, like in other fields, an important part is made by money.
Everyone has to deal with money matter during a project.
Today I would like to share an important information about my favourite Financial index: NPV.
Before showing an example, I want to explain in real words what an NPV is. It is the acronym of Net present value.
As you know during the time the currency tends to evaluate, that is when the inflation is positive. With NPV we calculate, in base on time, the rate of inflation and other costs ( for example the cost of the money), the value that would have our return of investments in future but in the time that we want ( time zero is when we make the analysis and so the investment).
Wikipedia says "is a measurement of the profitability of an undertaking that is calculated by subtracting the present values (PV) of cash outflows (including initial cost) from the present values of cash inflows over a period of time."
"NPV is the sum of all the discounted future cash flows.
Because of its simplicity, NPV is a useful tool to determine whether a project or investment will result in a net profit or a loss. A positive NPV results in profit, while a negative NPV results in a loss".
I will show an example of how it works.
Imagine you want to buy a new home to rent, just for investment. How do you know the amount of money you need to get every year?
I imagined that we would like to rent a home and at the sixth year we would sell it.
We, analyzing the future market conditions, have to consider a cost of our money ( expected average inflation, if we borrow it, etc..).
If this number is positive, your investment might be paid off. If it's negative, it's not a good idea to keep this kind of investment.
The book is full of pages!!!
Everyone has to deal with money matter during a project.
Today I would like to share an important information about my favourite Financial index: NPV.
Before showing an example, I want to explain in real words what an NPV is. It is the acronym of Net present value.
As you know during the time the currency tends to evaluate, that is when the inflation is positive. With NPV we calculate, in base on time, the rate of inflation and other costs ( for example the cost of the money), the value that would have our return of investments in future but in the time that we want ( time zero is when we make the analysis and so the investment).
Wikipedia says "is a measurement of the profitability of an undertaking that is calculated by subtracting the present values (PV) of cash outflows (including initial cost) from the present values of cash inflows over a period of time."
"NPV is the sum of all the discounted future cash flows.
Because of its simplicity, NPV is a useful tool to determine whether a project or investment will result in a net profit or a loss. A positive NPV results in profit, while a negative NPV results in a loss".
I will show an example of how it works.
Imagine you want to buy a new home to rent, just for investment. How do you know the amount of money you need to get every year?
I imagined that we would like to rent a home and at the sixth year we would sell it.
We, analyzing the future market conditions, have to consider a cost of our money ( expected average inflation, if we borrow it, etc..).
If this number is positive, your investment might be paid off. If it's negative, it's not a good idea to keep this kind of investment.
The book is full of pages!!!
For who wants more information, write me!!
Audentes fortuna iuvat!!!
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