You Have Been Asked By A Manager In Your Organization To Put

You Have Been Asked By A Manager In Your Organization To Put Together

You have been asked by a manager in your organization to put together a training program explaining Net Present Value (NPV) and Future Value (FV) and how they are used to evaluate the price of stock. You have been given the following objectives: Upon completing your Net Present Value (NPV) and Future Value (FV) Training Program, employees should be able to do the following: Explain NPV and FV. Describe the factors that are used in the NPV and the FV formulas. Give an example of how to use the formulas for NPV and FV for a stock purchase. Summarize the differences between the two formulas and the purpose of using each.

Develop a 10- to 12-slide PowerPoint Presentation (excluding title slide and reference slide) that cover each of the above topics. In the slide notes, include your explanations for each topic above. You must use a minimum of two scholarly sources. Format the presentation and cite your resources according to the APA 6th edition style guide as outlined in the Ashford Writing Center.

Paper For Above instruction

The presentation aims to elucidate the fundamental concepts of Net Present Value (NPV) and Future Value (FV), two pivotal financial metrics used in evaluating investment opportunities, particularly stocks. By understanding these concepts, employees can make more informed decisions regarding stock purchases and investments. The development of this training involves explaining NPV and FV, identifying the factors used in their calculations, providing practical examples, and summarizing their differences and distinct purposes.

Introduction to NPV and FV

Net Present Value (NPV) is a financial metric that calculates the present value of a stream of cash flows generated by an investment, minus the initial investment cost. It essentially assesses the profitability of an investment by considering the time value of money, which accounts for the fact that a dollar today is worth more than a dollar in the future (Ross, Westerfield, & Jordan, 2019). On the other hand, Future Value (FV) estimates the amount to which an investment will grow over a specified period, given a particular interest or discount rate. FV helps investors estimate the value of an investment at a future date based on periodic contributions and compounded interest (Brigham & Ehrhardt, 2016).

Factors Used in NPV and FV Calculations

Several key factors influence NPV and FV formulas. For NPV, the main components are cash inflows and outflows, the discount rate (which reflects the risk and opportunity cost), and the time period of the investment. The formula discounts future cash flows to their present value to determine whether the investment adds value. For FV, the critical factors are the present value, the interest rate (or rate of return), and the number of compounding periods. Both calculations are based on the principle of compounding, but they serve different analytical purposes.

Examples of NPV and FV in Stock Investments

Suppose an employee is considering purchasing stocks expected to generate future cash flows. To calculate NPV, they would estimate all expected future dividends and potential sale proceeds, discount these cash flows back to the present using an appropriate rate, and subtract the initial cost of the stocks. If the NPV is positive, it indicates a potentially profitable investment. For FV, if an employee invests $1,000 in stocks with an annual return of 8% over five years, the FV can be calculated as: FV = PV × (1 + r)^n = $1,000 × (1 + 0.08)^5 ≈ $1,469.33. This forecasted future value helps assess the growth potential of the stock.

Differences and Purposes of NPV and FV

While both NPV and FV involve the concept of time value of money and use similar mathematical principles, their purposes differ. NPV is primarily used for investment appraisal; it assesses whether a project or stock will generate value by comparing present and future cash flows. FV, however, is more about estimating the growth of an investment over time, helping investors plan for future financial goals. In essence, NPV is a decision-making tool for evaluating current investments, and FV is a forecasting tool for future wealth accumulation.

Conclusion

Understanding NPV and FV is crucial for making sound investment choices in the stock market. By knowing how to calculate and interpret these metrics, employees can better evaluate the profitability and growth potential of different stocks. Incorporating scholarly insights and practical examples enhances comprehension and enables informed financial decision-making aligned with organizational and individual investment goals.

References

• Brigham, E. F., & Ehrhardt, M. C. (2016). Financial Management: Theory & Practice (15th ed.). Cengage Learning.
• Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2019). Fundamentals of Corporate Finance (12th ed.). McGraw-Hill Education.
• Penman, S. H. (2013). Financial Statement Analysis and Security Valuation (5th ed.). McGraw-Hill Education.
• Damodaran, A. (2012). Investment Valuation: Tools and Techniques for Determining the Value of Any Asset. John Wiley & Sons.
• Graham, B., & Dodd, D. L. (2008). Security Analysis: Sixth Edition, Foreword by Warren Buffett. McGraw-Hill.
• Fabozzi, F. J., & Markowitz, H. M. (2011). The Theory and Practice of Investment Management. John Wiley & Sons.
• Higgins, R. C. (2012). Analysis for Financial Management (10th ed.). McGraw-Hill Education.
• Reilly, F. K., & Brown, K. C. (2012). Investment Analysis and Portfolio Management (10th ed.). Cengage Learning.
• Copeland, T., Koller, T., & Murrin, J. (2000). Valuation: Measuring and Managing the Value of Companies. Wiley.
• Ferguson, J. (2009). The Little Book of Valuation: How to Value a Company, Pick a Stock, and Make Money. Wiley.