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.

Edgar: crowdfunding drive

Picking Up Poop for Science | National Geographic

View All

Convergence on macro scale | GDP: Measuring national income | Macroeconomics | Khan Academy

We’ve talked about things that might drive inequality, things that Thomas Piketty refers to as forces of divergence. But now, let’s think about, or at least some of what he cites as forces of convergence. So, forces of convergence are things that might ma…

Warren Buffett's Inflation WARNING for 2021

From raw material purchases by Berkshire subsidiaries, are you seeing signs of inflation beginning to increase? We’re seeing very substantial inflation. It’s very interesting. I mean, we’re raising prices, people are raising prices to us, and it’s being …

Jack Bogle: How to Tell if the Stock Market is Overvalued (Rare Interview)

That if you go back to 1949 and read Benjamin Graham’s “The Intelligent Investor,” he said never less than 25 or more than 75 percent in either of the two asset classes, bonds and stocks. So you can be 25% stocks and 75% bonds and work 75% stocks and 25% …

Athlane (S19) - YC Tech Talks, Gaming 2020 (November 9, 2020)

Uh yeah, so like I said, I’m the co-founder of Athlane. And so if you’re at this talk, you’ve probably watched a live stream before. Oftentimes, what’s not captured in that stream is what these creators endure to deliver that viewership experience. Wheth…

Worked example: Rewriting expressions by completing the square | High School Math | Khan Academy

Let’s see if we can take this quadratic expression here, ( x^2 + 16x + 9 ), and write it in this form. You might be saying, “Hey Sal, why do I even need to worry about this?” One, it is just good algebraic practice to be able to manipulate things. But as…

Peatlands Critical In Climate Change Fight | National Geographic

[Music] Nice. Yeah, really. PC, my name is Brett Azhagi, and I’m a postdoctoral researcher. We’re here to study the peatlands; you compare it to other soils. Peat is really carbon dense; it’s made up of partially decomposed plant material. All the carbon…

Net Present Value: What Future Income Is Worth Today

More Articles