Net Present Value Method

The net present value method is the classic economic method of evaluating the investment proposals. It is discounted cash flow technique that explicitly recognizes the tine value of money. It correctly postulates that cash flows arising at different time periods differ in value and are comparable only when their equivalents present values are found out. The following steps involved in the calculation that value:

• Cash flows of the investment project should be forecasted based on realistic assumptions.

• Appropriate discount rate should be identified to discount the forecasted cash flows. The appropriate discount rate is the projects opportunity cost of capital, which is equal to the required rate of return expected by investors on investments of equivalent risk.

• Present value of cash flows should be calculated using the opportunity cost of capital as the discount rate.

• It should be found out by subtracting present value of cash outflows from present value of cash inflows. The project should be accepted if net present value is positive.

Project acceptance rule using net present value

It should be clear that the acceptance rule using that method is to accept the investment project if its value is positive and to reject it if the net present value is negative. Positive value contributes to the net wealth of the shareholders, which should result in the increased price of a firms share. The positive net present value will result only if the project generates cash inflows at a rate higher than the opportunity cost of capital. A project with zero value may be accepted. A zero value implies that project generates cash flow at a rate just equal to the opportunity cost of capital.

The net present value acceptance rules are:

• Accept the project it is positive

• Reject the project it is negative

• May accept the project when it is zero

The value can be used to select between mutually exclusive projects; the one with the higher value should be selected. Using the net present value method, projects would be ranked in order of that; that is, first rank will be given to the project with higher positive value and so on.

Importance of the Net Present Value

It is the true measure of investments profitability. It provides the most acceptable investment rule for the following reasons:

• Time value. It recognizes the time value of money-a $ received today is worth more than a $ received tomorrow.

• Measure of true profitability. It uses all cash flows occurring over the entire life of the project in calculating its worth. Hence, it is a measure of the projects true profitability. That method relies on estimated cash flows and the discount rate rather than any arbitrary assumptions, or subjective considerations.

• Value additively. The discounting process facilitates measuring cash flows in terms of present values that is in terms of equivalent, current $. Therefore, the net present values of projects can be added.

• Shareholder value. That method is always consistent with the objective of the shareholder value maximization. This is the greatest virtue of the method.

Limitations of Net Present Value

The net present value method is a theoretically sound method. In practice, it may pose some computation problems.

• Cash flow estimation. That method is easy to use if forecasted cash flows are known. In practice, it is quite difficult to obtain the estimates of cash flows due to uncertainty.

• Discount rate. It is also difficult in practice to precisely measure the discount rate.

• Mutually exclusive projects. Further, caution needs to be applied in using that method when alternative projects with unequal lives, or under funds constraint are evaluated. The net present value rule may not give unambiguous results in these situations.

• Ranking of projects. It should be noted that the ranking of investment projects as per that rule is not independent of the discount rates.

Advice for Speakers and Presenters: 7 Ways to Turn a Free Gig Into a Financial Windfall

You’ve been asked to speak for an audience. However, the event organizer or meeting planner tells you they can’t pay you. Your heart sinks knowing that speaking for free will cost you in the long run. You think of all the expenses you’ll incur – gas, parking, photocopying materials, babysitter – and speaking for free means you won’t be reimbursed for these incidental costs.

Although a free gig can eat into your bottom line, you don’t need to refuse it altogether. If you’re still building your expertise, free gigs can help you to refine your message and try out new concepts on an eager audience.

The only way you can make money if you’re speaking for free, is to sell something. You just have to. Otherwise, known as back of the room (BOR) sales, here are some tips for ensuring that you rake in the cash even if you’re speaking for free.

Develop an information product that relates to your speech. You can sell a special report, a CD or a booklet that contains detailed information from your speech. For example, I do a speech called 7 Brainless Networking Techniques to Avoid. After my speech, I encourage attendees to buy my ebook on CD called Schmooze Your Way to Success for further reading and research. Even if you don’t have an ebook or physical book to sell, there are ton of information products you can develop. Here are some ideas:
Photocopies of a 10-page special report
An audio CD containing a teleclass you led
A data CD containing a collection of reports, articles or an ebook
A booklet with dozens of tips
A DVD with a training session you did for another group
Sell something that people can take away with them. People want to buy something that they can hold in their hands and walk out the door with. Coaching sessions, digital downloads and other intangible products may be a tougher sell since people can’t hold or touch it. Opt to sell a CD, a booklet or a book instead.
Ensure that your product is inexpensively priced. If it’s too expensive, attendees won’t buy. If it’s too cheap, attendees will ignore it. Anything priced between $10 to $20 is appropriate for BOR sales.
Accepting credit cards is a must. People are impulse buyers, especially at special events. If there’s a rush to the table to buy your product and you only accept cash, you will miss out on potential business. At least 45% of my BOR sales are through credit cards. Many credit card processing companies can set you up with a telephone call-in service within 2-weeks. You collect the credit card number at the event, then you call-in later from your home or cell phone to authorize it. Simple as pie.
Mention your product at the end of your speech. Never, ever, mention your product throughout your presentation. This will turn people off. It’s tasteless to introduce a concept in your speech, and then say, “You can find a more detailed, step-by-step process in my ebook.” Instead, graciously give attendees 45-minutes worth of useful information, then at the very end, after the Q&A, pitch a 2-minute commercial for your product.
Try to videotape or audiotape your presentation. You always want to improve on your speech and being able to review it later is always helpful. Hire a videographer to tape your presentation. If you can’t find one, record your presentation using an audio recording device. Capturing a recording of your speech will do 2 things:
You can evaluate the audience’s reaction to your sales pitch. If sales were low, you can tweak it. Or, if sales were high, you can duplicate what you said word for word at other speaking engagements.
If your speech was amazing, you can package the video or audio and sell it at your next speaking engagement. Imagine how grateful your audience will feel knowing they don’t have to take notes because they can purchase your presentation and review it at their leisure.
Remember to ask if you can make sales. Before saying yes to a free gig, always get the permission from the meeting planner or event organizer for BOR sales. Most times, they will say yes to your request. In the odd event that they say no, tell them you’ll donate a portion of sales to their group. This should win them over. If the meeting planner or event organizer still refuses your request for BOR sales, you may want to rethink doing a free gig for them.
Free speaking engagements can cost you big, but not if you incorporate BOR sales into your strategy. Follow the tips above and you’ll gleefully say yes to a free gig knowing that you’ll be able to cover your costs with the product sales you’ll make at the event.

Great Ideas For Unusual Wedding Presents

Have a wedding coming up, but don’t want to give the usual toaster or champagne glasses as gifts? There are some wonderful choices for gifts that are sure to be “one-of-a-kind” for your newlywed couple, and will be treasured for years to come.

A wonderful choice that is sure to be a treasured fireplace mantle decoration is a polished copper egg. It measures 1 ½ by 2 inches, and is hand polished to a lovely sheen. It also makes a great paperweight, or table decoration. If your bride or groom collects novelty eggs, this is a perfect choice.

Another elegant idea is a precision machined set of brass candlestick holders – hand polished to a brilliant gloss. These will last a lifetime and can be passed down for generations to come. They are sure to add a touch of class to any buffet, table, or fireplace mantle lucky enough to have them as accessories.

A truly fabulous choice is the Anniversary Bud Vase – although it has “anniversary” in its title, you don’t have to wait for an anniversary to give it as a present! This is a limited edition item and sets are only produced as the Swarovski Crystal Roses that adorn it become available, so if you want this item for a present, order early. This vase was inspired and designed by and for the Swarovski Crystal Rose – and together, they make a true heirloom item that is sure to be treasured for many generations to come. If you give this beautiful vase as a wedding gift, you will definitely outclass all the toaster and waffle maker givers by far.

And lastly, think a pocket toothpick holder is not a fine wedding present? Well, think again! How about one plated in 18K gold? They’re very practical, elegant, and you could get two for the perfect His & Hers set.

No matter which custom machined present you choose to give, it is sure to be a gift of lasting beauty and elegance, and will be valued highly by the lucky bride and groom for many years to come.