Share
clock Created with Sketch.
21/10/14
11:48
Share
Originally posted by nihilism
↑
I wasn't meaning to imply I counted the inflation rate twice, I was meaning to say that NPV already takes inflation into account when in reality it probably shouldn't.
For instance, although inflation is going to eat away the 'value' of money (what the NPV does anyway) it will also increase the value of the product and the costs associated in a ratio which commonly means a good operation today will be inflationally adjusted the same good operation tomorrow. It's when the product value deflates and the labour/costs inflate that companies run into problems (commodities do this often).
For NPV discount rates, I use the 3 standard - 8, 10 and 12, over several time frames (usually 5, 10, 15 and 20) to give me scenarios on how optimistic/pessimistic to be. Generally 15 and 20 year become irrelevant as it whittles down to nothing, so you could use an NPV 6 if doing longer time-frames (some do this for long-mine assets) however investors won't be impressed with a good NPV6, 20 year number. Most investment firms care about the NPV10 - 10 year number.
Expand
Good points there to grab, thanks.
For NPV discount rates, since this year I am using 6, 8 and 10.. For some reasons, i noted that the 6% becomes favorable for a lot of public sectors these days...The end results are not insignificant.