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Hope they go well. Seems that equation is pretty famous (I don't have any business books from my college days left, I'm afraid) but it should be easy enough to find.
Is there a particular aspect of NPV calculations that are stumping you, or perhaps some trouble with where to plug in which value?
I just mentioned CCH and their tools because I use them frequently, and they're very good at providing explainations and easy to use tools. I told you to do the Google search because I'm not sure (yet) where you can and can't post URLs on WW, so I err on the cautious side. :)
The problem is there isn't a text book that goes along with the class. Well technically there is, but the text book is for cases.
Thanks for the help, will let you know what I find out.
I am in a e-commerece grad program and the teacher is an accouting/finance professor. He thinks everyone knows and wants to know this stuff.
Everyone should want to know it!
If you're planning on making any money or managing any budgets in your ecommerce career then working out things like NPV will be very useful indeed. Just because you're focusing on ecommerce doesn't mean that you shouldn't know how a business works - it means that you should take care to learn this even more!
If the discount rate does not comprise the cost of capital, you need a "nominal" discount rate. This should be (1 + 0.15)(1 + 0.25) - 1.
Anyway, it's a long time since I've been at uni and, so, I probably don't know what I'm talking about. :)
So you need to choose which of the given rates to use. Figure out which is based on the closest equivalent investment. e.g. Say the discount rate given is for property investments and the cost of capital given is an IT company's internal weighted average cost of capital. Then choose the discount rate if the project you are trying to calulate the value of is a building project, but choose the cost of capital if it is an IT project. Does that make sense?
The formula is really simple; you don't need Excel, and you should figure out how to do it the long way. I think I will show an explicit formula here, because even after bakedjake's post (msg #2) you still seem to be having trouble...
For 4 time periods:
C0 + C1/(1+r) + C2/(1+r)^2 + C3/(1+r)^3
[added... Damn, I'm too late on the submit button. Markus got there first
It will depend on which discount rate you ended up using, but my guess is something closer to $8M, not $3M