Net Present Value: What Future Income Is Worth Today

less than 1m read

·Nov 3, 2024

Let’s talk about NPV. NPV is just the net present value of something. It’s when you say that stream of payments I’m gonna get in the future: what is that worth today?

So a common example of this is you're joining a startup company and you're getting stock options. The founder says, “Well, this company is going to be worth a billion dollars and I’m giving you 0.1 percent of the company; therefore, you’re getting a million dollars worth of stock.” What he’s or she’s arguing is what’s going to be worth in the future. You have to discount that back to today. You have to figure out what is that worth today, and you have to apply a discount rate or an interest rate that takes into account the massive risk the startups face.

What you end up with is the price that it’s worth today, and that’s the price at which a venture capitalist would invest in the company today. So if that founder just raised a round at ten million dollars and that company’s only worth one percent of what the founder's arguing, your million-dollar package is actually worth ten thousand dollars.

So NPV calculations, at a very rough level, you should be very comfortable doing in your head.

The 10 Trillion Parameter AI Model With 300 IQ

What if the Moon was a Disco Ball?

View All

Worked example: Parametric arc length | AP Calculus BC | Khan Academy

Let’s say that X is a function of the parameter T, and it’s equal to cosine of T, and Y is also defined as a function of T, and it’s equal to sine of T. We want to find the arc length of the curve traced out, so the length of the curve from T equals 0 to …

Stolen Mummy's Left Hand Found and Returned to Egypt | National Geographic

We have a repatriation of ancient artifacts from Egypt. It includes a child sarcophagus about 2,600 years old, the top of another mummy sarcophagus, a burial shroud from inside a mummy sarcophagus, and finally, there is a mummified hand which was collecte…

Warren Buffett: How to Make Money During a Recession

So it seems like pretty much everyone is worried about the economy right now, and for good reason. Inflation is at a multi-generational high. The last time inflation was this high in the United States was in 1981, more than four decades ago. In order to g…

Anti-Natalism: The Argument To Stop Giving Birth

Suppose there is a couple, the Joneses, who just gave birth to a baby boy named Sammy. As they stand together in the hospital gazing down at their newborn, they share an awareness that the life ahead of Sammy will be filled with an indeterminable amount o…

COVERED IN CHICKS -- IMG! #41

A rooster… cat? And Ronald orders a number three. It’s episode 41 of IMG! City life. Oh hi. And here’s a necktie that’s formal and manly, though, of course, I prefer one piece cat faces. Too much coverage? Well, try on one of these or just wear a slice of…

TIL: Lionfish Jewelry Can Help Save the Ocean | Today I Learned

There are a ton of fish in the sea, but there is one fish in particular that we are working very hard to take out, and that is the invasive lionfish. Lionfish were introduced off the coast of South Florida in the mid-1980s. Lionfish are prolific breeders;…

Net Present Value: What Future Income Is Worth Today

More Articles