标题: Question about NPV profile [打印本页] 作者: w1977 时间: 2011-7-13 15:13 标题: Question about NPV profile
Hey guys,
I can't seem to understand why a situation where cash inflows occur later in time makes the profile have a steeper slope compared to a situation with the same cashflows but happens earlier in time. I hope that makes sense!
Thnx作者: eagles_dare13 时间: 2011-7-13 15:13
If cashflows occur later in time, NPV decreases much faster as discount rates increase (the value of cash flows decreases much faster due to extra time). Hence the line is steeper作者: Daniel1985 时间: 2011-7-13 15:13
In adition to anish was saying, remember that the point where the NPV profile starts at the vertical axis is the sum of the total undiscounted cash flows (or NPV if discount rate = 0%). Where the NPV profile crosses the horizontal axis, that is equal to the project's IRR (where NPV = 0).
Say you have 2 projects:
Project 1:
CF-0 = -1,000
CF-1 = +1,200
Its easy to see and calculate that the IRR on Project 1 (20%) is higher than Project 2 (3.09%).
If you draw the NPV profiles, they will both start at the same point on the vertical axis since both projects have the same undiscoutned net cash flows (+$200).
All you need to do to get the full NPV profile is connect that vertical axis point (+$200) with their corresponding IRRs (20% and 3.09%). Obviously, the 3% IRR will be steeper than the 20% IRR.
Hope this helps.作者: scr879 时间: 2011-7-13 15:13
Yes and the IIR will make the NPV 0作者: Finalnub 时间: 2011-7-13 15:13
oo thanks guys, I get it completely now. I had a hunch it had to do with sensitivity and time, I just never thought of the "npv = undiscounted cf at y axis" which is stupid of me because its a given.作者: Maddin 时间: 2011-7-13 15:13
Also this is similar concept to the duration of bonds where the price change due to interest change of a bond price increases with maturity? Please correct me if I'm wrong?作者: spartanag07 时间: 2011-7-13 15:14
I didn't see similarity between NPV profile and Duration. Am I missing something?作者: dmar 时间: 2011-7-13 15:14
duration shows relationships between Price and yield (horizon is yield, vertical is Price).
NPV proflile is between discount rate and NPV, then no similarities作者: Kiakaha 时间: 2011-7-13 15:14
sorry guys, correct something, duration is slope of a bond Price-yield
