Net Present Value

Student S asked us a couple of questions about NPV:

I'm doing NPV now and I realised i completly forgot your way of working out the discount factor with a simple calculator. I'v bought a normal casio now so i can work it out your way and now i cant figure out how to do it.

The way to calculate the discount factor (DF) using a simple (non-scientific calculator) can vary from calculator to calculator, but usually it's something like this:

Say the interest rate is 5%. To get the DF for each year plug in 1.05 ÷ =

This should give you the DF for year 1, and every time you press = you get the DF for the following year.

On some calculators, you don't need to press = but just keep pressing ÷ to get the DF for each year.

You'll have to play around with your own calculator to see which routine works on it.

Also, having looked at pass papers i realised you dont ask in any of them to work out NPV, apart from in a theorical way. Are we not expected to do this in the exam because we've already done it in the coursework?

I can't tell you what's in the exam. In the past, I have set an NPV calculation as a question, but it was quite a few years ago. You shouldn't exclude this from your revision.

And, Do we need to learn how to apply IRR and AARR as well as NPV? or just NPV?

I expect you to know what these are as far as we covered them in class (an overview). I don't expect you to calculate IRR because I didn't show you how to do that. The worked example in the Studypack is just for information and for your future reference when you leave us.