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Gold/Mining/Energy : Trump's 12 Diamond Picks, Discussions Limited
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To: Tomato who wrote (1384)10/18/1998 10:55:00 PM
From: maintenance  Read Replies (2) of 2251
 
NPV is a decision maker. If NPV is positive, do it, if NPV is negative, don't. When comparing projects the highest NPV wins, provided it is positive.

NPV...Net Present Value

The discount rate should reflect the cost of money. If your cost of money is the risk free rate, it is appropriate. I don't imagine WSP can borrow at the risk free rate, there would be a premium.

Discounted cash flow analysis gives the illusion of precision, it should be based on stated assumptions.

If the price of diamonds is expected to inflate, you would discount the inflated figures. If the inflation rate is higher than the cost of money (discount rate) then yes the resulting NPV will be higher.

These are all estimates and are useful in evaluating a project. P/E should use estimated E. The problem with IRR is that it assumes a constant reinvestment rate.

When I get a minute I'll rerun the numbers using Georges figures for tax, reclamation etc.

Do you care to provide an inflation rate?

NPV is easy to calculate.

If you have a series of cashflows, say $100 per year for two years, and a discount rate of 5% then you have
(100/1.05)+(100/(1.05^2)=95.24+90.7=185.94
so paying $185.94 for those cashflows is exactly fair. Of course providing that your discount rate is correct!

Cheers
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