Net Present Value describes what the value of a future cash-stream is comparably worth today using a given discount rate (we call that the Net Rate of Return or Net Expected Return).
Target-Maps use present values to compare the value of what you want for the future in today's dollars (lump sum), with the value of what you have now and what is expected to come in the future in today's dollars (lump sum). The discount rate (net rate of return) that Target-Map uses is the value you've placed in the Expected Net Return on Capital field.
Target-Maps are based on business funding logic:
- How funded am I for a project? Shown as % score and progress bar.
- What are my expectations of return (cost of capital)? Net expected return.
- What do I want (now or in the future)? Capital cost today.
- What do I have already earmarked for this project? Capital available today.
- How should I fund this project? New capital now or cash-flow over time.
Click below to access outside resources to help understand how Net Present Value works.
- Investopedia - Present Value ( 2 minute video)
- Forbes - Present Value of Social Security
- The Balance - Net Present Value for Retirement Planning
- Kitces - Social Security as a Lump Sum
- Investopedia - The Time Value of Money (90 seconds)
1/2019