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Math Help - Finance related question

  1. #1
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    Finance related question

    Initial cash flow, C0 = -10,000 and cash flow in Year 1, C1 = +18,000.......What is the NPV and what is the Rate of Return, with a Opportunity Cost of capital of 20%???

    Thanks!
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  2. #2
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    Quote Originally Posted by njrocket View Post
    Initial cash flow, C0 = -10,000 and cash flow in Year 1, C1 = +18,000.......What is the NPV and what is the Rate of Return, with a Opportunity Cost of capital of 20%???

    Thanks!
    Just discount the cash flows into todays dollars. The first one is already in todays dollars, the cash flow in one year needs to be discounted back one year.

    NPV = -10000 + \frac{18000}{1.20}
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  3. #3
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    Quote Originally Posted by jass10816 View Post
    NPV = -10000 + \frac{18000}{1.20}
    Okay, thanks alot, i see what you mean. What would be the formula for the Return?
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  4. #4
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    By rate of return do you mean IRR or Return on your $10,000 investment. IRR is the opportunity cost of capital that makes NPV = 0, so solve 0 = -10000 + \frac{18000}{1+IRR}. If you mean return on investment, I think you just need to do \frac{\frac{18000}{1.20}}{10000}-1
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  5. #5
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    Quote Originally Posted by jass10816 View Post
    By rate of return do you mean IRR or Return on your $10,000 investment. IRR is the opportunity cost of capital that makes NPV = 0, so solve 0 = -10000 + \frac{18000}{1+IRR}. If you mean return on investment, I think you just need to do \frac{\frac{18000}{1.20}}{10000}-1

    All it says is rate of return, where its profit divided by investment.....The investment would be the 10,000....but how do you figure out the profit?
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  6. #6
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    The profit in nominal terms is 18000-10000 = 8000.
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  7. #7
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    ask

    I am 18 years old and I have been practicing spread betting in demo accounts for months and I'm quite good at it. I only have a couple of grand to start though, but I think I would need more money to stand a chance at it, say £10-15k. The reason I think having this much would be best is because the demo has this amount as a starting balance. How could I raise finance for it? Could I work, or trade spot-forex for a year as I'm quite good at that to make the moeny I need? Please help/advise. Thanks.
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  8. #8
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    Are you serious?
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  9. #9
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    I assumed it was a spambot
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  10. #10
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    Quote Originally Posted by SpringFan25 View Post
    i think hes serious. Did i mention i am just waiting for my $1m from nigeria?
    Geeezzzzzzzzz...I'm jealous: I'm waiting for a lesser (800,000)USD inheritance from some relative...
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