A typical market basket of goods and services is used to fig…

A typical market basket of goods and services is used to figure out the Consumer Price Index (CPI). It compares how much they cost this month to how much they cost one month, one year, or ten years ago. The point in time in the past that is used to compare current prices to is called the “past period.”

When using the Net Present Value (NPV) method to judge a pro…

When using the Net Present Value (NPV) method to judge a project, a positive PW(i) means that the project will likely lose money when the time value of money is considered. That is, more than the project’s future profits would be needed to cover the initial cost and the wanted return. Because of this, such a project would usually be turned down. Conversely, a negative PW(i) indicates a high likelihood of profitability and a return that meets or exceeds expectations. In this case, the project has a good chance of being approved.

Over time, the net cash flow of an investment project can he…

Over time, the net cash flow of an investment project can help us put it into a category. We specifically keep track of how many times the cash flow changes from negative (money spent) to positive (money gained) or from positive to negative (money gained). We do not count times when there is no cash flow. The project’s cash flow changes more and more as these switches happen.

Considering how much money changes hands over time, the disc…

Considering how much money changes hands over time, the discounted payback period shows how long it will take to get the initial investment back. The present value (discounted value) of future cash flows is used to figure this out, not just the raw numbers. Inflation or deflation means that a dollar today is worth more than a dollar tomorrow. This number tells you how quickly you will get your money back.