Discount rate when multiply NPV?
Let's say I hold $3mil and I have 2 choices:A: borrow $1mil beside 15% interest rate then invest 4$mil contained by a project
B: Invest $2mil in another project. I might lend the $1mil remain for 10% interest rate
=> I hold to calculate NPV but what is the discount rate? 10% or 15%?
I also appreciate if you speak about me more about how to pick up the right discount rate when figure NPV-IRR
Answers: Opportunity cost for you is 10%. That seems to be the interest rate that you can earn by lend the money to borrower or bank. So, you should choose the discount rate of 10% for NPV calculation. However, this applies to your second project. But for the first project is based on 25% of the investment funded by borrowing whose cost is 15%. So, your weighted cost of funds is (0.75*10 +0.25*15) = 11.25. So, the discount rate should be 11.25% for the first project. Remember, however, not to include the interest paymrents as a cost by conjecture it from the cashflows.
But you want a choice between either 10% or 15%. Then you choose 15% as the discount rate for calculating NPV for both the projects. So long as nearby is no switching point between 10% and 15%, there is no problem.
For IRR calculation, no discount rate has to be chosen. You enjoy to find the discount rate at which the NPV is zero. Once you own soled the equation and found the IRR you have to compare the IRR near the weighted cost of investment (11.25% for the first project and 10% for the second). If the IRR is higher than the weighted cost of wherewithal, the project is acceptable. But which project to choose. Choose the one near the higher IRR.
pick up both and probably also their average and see what have the highest NPV tht is wht counts right.
or you can also benchmark the discount rate to a flea market security close to bonds or CDs which ever suites you
cheers
You should use 10% as your discount rate.
As you don't know how much cash flow your projects can generate you can't divide the actual NPV or IRR. To determine the correct discount rate, ask yourself what is the opportunity cost of the investment.
Basically your options are:
1. invest within project A: 3M + 1M (a)15%
2. invest in project B: 2M
3. lend 1M (a) 10%
In your baggage, the returns you can get from project A or B is unknown, but do know you can carry at least 10% on 1M. That would indicate a discount rate of 3.3% (10%/(1+2)), but I'm guessing you can lend an unlimited amount at 10%, so 10% would be the correct discount rate.
IRR is a special defence where the discount rate make the net present helpfulness equal to zero.
I stipulation 3 things to invest on within stocks. respectively share desires to be 500$ or smaller quantity. please sustain?
need comfort investingAnswers: 1) BAC (Bank of America): during the sub-prime mess it was competent to stay profitable, now its stock is at a huge discount
2) AMD (competes near Intel): way over sold, prepared to make a comeback
3) MKL (insurance company): this company follows indistinguishable strategy as famed investor Warren Buffet's Berkshire Hathaway
Might consider your namesake Devon Energy ticker DVN $84 a share. Just a thought. Why 3 things? Is this a game or is this for existing?
What is the Dow Jones number of 12,383.89 made up of?
How do we come up with that #? Is it adjectives the stocks added together?Today the Dow was UP 176.72 points, is that what you go and get if you take adjectives the stocks and add and subtact the ups and downs?
Wondering how we come up beside those #'s please explain.
Answers: The DJIA was originally calculated by simply tallying up the price of Dow components and dividing by the number of stocks in the index.
When companies have stock splits or gave out stock dividends, the stock prices changed even though the attraction of the company didn't. The index, because it is price-weighted, would be distorted. To solve this problem, Dow Jones introduced the Dow Divisor. It's modified downward to reflect corporate travels that don't fundamentally change the merit of the company. The divisor is also changed when the individual companies change within the Dow index (when one company is dropped and a different company added).
So now, the price of adjectives of the Dow index of 30 stocks is divided by a Divisor, rather than by 30.
This website give you the divisor and weights of the Dow components.
http://www.cbot.com/cbot/pub/cont_detail...
That one is easy
To work out the DJIA, the sum of the prices of all 30 stocks is divided by a divisor. The divisor is familiar in valise of splits, spinoffs or similar structural changes, to ensure that such events do not surrounded by themselves alter the numerical value of the DJIA. The initial divisor be the number of component companies, so that the DJIA was at first a simple arithmetic average; the present divisor, after frequent adjustments, is smaller number than one (meaning the index is actually larger than the sum of the prices of the components). That is:
where on earth p are the prices of the component stocks and d is the Dow Divisor.
Events like stock splits or change in the inventory of the companies composing the index alter the sum of the component prices. In these cases, in decree to avoid discontinuity in the index, the Dow divisor is updated so that the quotations right beforehand and after the event coincide:
Some of the equations didn't paste here, you can step to :
http://en.wikipedia.org/wiki/Dow_Jones_I...
for the details. I don't get it. Over my person in charge