NPV

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:32AM in AAT student discussion
Hello can someone please explain net present value to me. Would the rate of inflation i.e 3% be the same as the rate of Interest? Thanks

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:NPV

    Omg we've never done rate of inflation & NPV :shock: am I supposed to know this? I know NPV but what's all this about inflation?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:NPV

    Net Present Value is used as a way of evaluating the viability of possible investments.
    Each cash flow is discounted by a predetermined rate to produce a present value (or value today of cash that will not be received until a point in the future).
    The discount rate is calculated to take account of things like inflation and risk, so I recommend that you don't let this confuse your understanding.

    AAT will give you the discount rate and the values for that rate for each year where there are cash flows, so you will not need to work either out yourself.

    sandy.hood@chichester.ac.uk

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