Why do you need to substract initial investment in NPV formula?
$begingroup$
The initial cash flow(s) of a project will be negative because of the investment.
Why do you need to substract the initial investment in order to calculate NPV?
Doesnt't the initial investment already cancel out with the other positive cash flows? By substracting the initial investment, doesn't it basically mean that you want to recover at least 2 times the initial investment?
Can you please shed some light on this? Thanks.
finance economics
asked Jan 6 at 19:18
Toma Radu-PetrescuToma Radu-Petrescu
1726
$endgroup$
add a comment |
$begingroup$
The initial cash flow(s) of a project will be negative because of the investment.
Why do you need to substract the initial investment in order to calculate NPV?
Doesnt't the initial investment already cancel out with the other positive cash flows? By substracting the initial investment, doesn't it basically mean that you want to recover at least 2 times the initial investment?
Can you please shed some light on this? Thanks.
finance economics
asked Jan 6 at 19:18
Toma Radu-PetrescuToma Radu-Petrescu
1726
$endgroup$
add a comment |
$begingroup$
The initial cash flow(s) of a project will be negative because of the investment.
Why do you need to substract the initial investment in order to calculate NPV?
Doesnt't the initial investment already cancel out with the other positive cash flows? By substracting the initial investment, doesn't it basically mean that you want to recover at least 2 times the initial investment?
Can you please shed some light on this? Thanks.
finance economics
asked Jan 6 at 19:18
Toma Radu-PetrescuToma Radu-Petrescu
1726
$endgroup$
The initial cash flow(s) of a project will be negative because of the investment.
Why do you need to substract the initial investment in order to calculate NPV?
Doesnt't the initial investment already cancel out with the other positive cash flows? By substracting the initial investment, doesn't it basically mean that you want to recover at least 2 times the initial investment?
Can you please shed some light on this? Thanks.
finance economics
finance economics
asked Jan 6 at 19:18
Toma Radu-PetrescuToma Radu-Petrescu
1726
asked Jan 6 at 19:18
Toma Radu-PetrescuToma Radu-Petrescu
1726
asked Jan 6 at 19:18
Toma Radu-PetrescuToma Radu-Petrescu
1726
asked Jan 6 at 19:18
Toma Radu-PetrescuToma Radu-Petrescu
1726
asked Jan 6 at 19:18
Toma Radu-PetrescuToma Radu-Petrescu
1726
1726
add a comment |
add a comment |
1 Answer
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$begingroup$
NPV measures the net present value of the investment, that is, the value of the investment minus the initial outlay. Therefore $0$ is meaningful, as an investment that breaks even under the discounting assumptions.
answered Jan 6 at 20:02
obscuransobscurans
1,152311
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1 Answer
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1 Answer
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$begingroup$
NPV measures the net present value of the investment, that is, the value of the investment minus the initial outlay. Therefore $0$ is meaningful, as an investment that breaks even under the discounting assumptions.
answered Jan 6 at 20:02
obscuransobscurans
1,152311
$endgroup$
add a comment |
$begingroup$
NPV measures the net present value of the investment, that is, the value of the investment minus the initial outlay. Therefore $0$ is meaningful, as an investment that breaks even under the discounting assumptions.
answered Jan 6 at 20:02
obscuransobscurans
1,152311
$endgroup$
add a comment |
$begingroup$
NPV measures the net present value of the investment, that is, the value of the investment minus the initial outlay. Therefore $0$ is meaningful, as an investment that breaks even under the discounting assumptions.
answered Jan 6 at 20:02
obscuransobscurans
1,152311
$endgroup$
NPV measures the net present value of the investment, that is, the value of the investment minus the initial outlay. Therefore $0$ is meaningful, as an investment that breaks even under the discounting assumptions.
answered Jan 6 at 20:02
obscuransobscurans
1,152311
answered Jan 6 at 20:02
obscuransobscurans
1,152311
answered Jan 6 at 20:02
obscuransobscurans
1,152311
answered Jan 6 at 20:02
obscuransobscurans
1,152311
1,152311
add a comment |
add a comment |
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