Net present value method

Definition of the net present value method

Die Kapitalwertmethode ist eine dynamic investment calculation, bei welcher der Kapitalwert zum Beginn der Nutzungsdauer von Investitionsobjekten als Maßstab der Vorteilhaftigkeit dient. Sie wird deshalb auch als Bar-Kapitalwert-Methode bezeichnet.

Net present value of an investment

The net present value of an investment is the difference between the cash value of the investment-related payments and the cash value of the investment-related payments, whereby the liquidation proceeds of the investment object are discounted and added to the surpluses of the investment object.

Co = Ce -Ca

Co = net present value (€)
Ce = discounted payments (€) (including liquidation proceeds)
Ca = discounted payments (€) (including acquisition cost)

The net present value can be positive, negative or zero. Accordingly, taking into account the expenditure and the expected interest rate, there is an investment gain or an investment loss. At zero, the investment can still be beneficial.

possible assessment with the net present value method

The net present value method can be used to assess:

The advantageousness of an individual investment object that is given when the Net present value is equal to or greater than zero.

The advantages of alternative investment objects, whereby the investment object is the more advantageous, the has a greater net present value.

the optimal replacement time an old investment property with a new one.

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