Hi everyone!
So, I have a project where I need to determine NPV and IRR for an investment from the perspective of the company which carries out the project .I have tricky situation. I am not English speaking so I had difficulties finding a solution online.
My 2 serious are :
1. The initial investment is borrowed entirely from a bank
2. Loan is given out in portions in a period of 3 months hence there is accrual of interest at every end of the month
My questions are following:
1. What is the initial investment in period 0? I need to find out the NPV.
I am assuming it is 0, because the money is from a third party which is being given back in principal payments (I am discounting them for PV).
2. If the initial investment is 0 as in question 1., what range should I use for NPV, PV and IRR calculations with MS EXCEL functions?
Thanks in advance. I really need this, because I can't find anything on topic "Initial investment is a loan for commercial projects"
Pic related.
>>1170304
hmm.. maybe the initial investment would only occur after all of the capital has been borrowed? I also dont see cash flows changing much until the end of year 1..
>>1170314
But if we judge from the perspective of the company who borrows. They put in 0 percent of their own money, so they actually start with zero.
If it was their own money, then I would not account for principal payments because there would be none. The company would get it's investment back via higher revenues (which are now lower due to principal being accounted into).
So basically you put zero of your own and decide how much this 5 year cashflow is worth.
That is my way of thinking. I do not yet know if it is correct so I need someone with decent expertise in this field to tell me am I wrong or not.
Thanks for the input btw nonetless!
>>1170318
> via higher revenues
I meant via higher (more positive) net cash flow
Bump. Really need this ASAP
NPV is purely about the project you are undertaking. Nothing else. So don't try to factor in the interest costs related to your loan.
Your period 0 is the outlay. I.e. -$150000
>>1170369
But what if the project is that big that a bank loan is mandatory because company won't get those funds anywhere else - basically these projects are funded through loans only. Wouldn't it be reasonable to factor in interest cost?
I don't get it. What is the use of NPV if without interest payments it is OK, but once I carry out the project I take the loan and my cash flow goes to shit?
>do my homework for me
Does this look like /sci/?
Fuck off pajeet.
>>1170381
Not a homework.
And I am discussing.
Invest in a financial calculator. It'll do everything for you in about 20 keystrokes.
>>1170904
I would like understand the fundamentals of analysis
>>1170904
The best financial calculator out there is excel. If you can't figure it out using excel, you should spend some more time learning the math behind everything.
>>1170935
I am doing the excel right now and I get the formulas etc. My workbook has more than 10 spreadsheets and it is quite complicated to show. I just drew a simpler example for the thread.
The thing here is how to evaluate a project with such characteristics. See >>1170378
I am asked to calculate the NPV but simple NPV excluding all the interest payments and "forgetting" the loan just by putting it in initial investment at full scale is a bit useless because these projects IRL can't be financed with own money. Also discounting factor can't be used as a simple (r) - interest rate on deposits because they are almost zero now. I am not asked to use a discount rate by comparing it to some other project either. ( so nevermind my 5% discount rate in OP pic).
Should I use APV instead?
