6-4 Net present Value Example Suppose we can invest $50 today and receive $60 in one year. What is our increase in value given a 10% expected return? 60 Profit=-50+ =$4.55 1.10 $4.55 Added value $50 Initial Investment This is the definition of npv Irwin/McGraw-Hill CThe McGraw-Hill Companies, Inc, 2001©The McGraw-Hill Companies, Inc.,2001 6- 4 Irwin/McGraw-Hill Net Present Value Example Suppose we can invest $50 today and receive $60 in one year. What is our increase in value given a 10% expected return? This is the definition of NPV Profit = -50 + 60 1.10 = $4.55 Initial Investment Added Value $50 $4.55