Is the revaluation surplus periodic
1. Term:Present value of all payments and payments generated by an investment project (see figure).
The periodic excess payments are calculated as the difference between the payments and payments associated with the investment project. In the last year of the planned useful life, any residual value (Rn), which is also discounted to the valuation date. The discount rate is derived according to the opportunity cost principle from the best alternative possible use of capital for the investor. In practice, a risk-equivalent capital market investment is usually used to derive the discount rate.
3. Decision rule: The net present value is of fundamental importance for assessing the profitability of investments (investment calculation). Investment projects with a positive net present value generate a return that is above the minimum return expected by investors. These projects increase the wealth of investors and should be implemented under financial aspects. Investment projects with a negative net present value, on the other hand, are not advantageous because they do not achieve the required minimum rate of return.
4. Meaningfulness: The net present value method based on the net present value is now considered to be the state-of-the-art of investment calculation. The procedure is characterized by its payment and future orientation as well as the consideration of the opportunity cost principle. In this way, investors are immediately informed about the contribution an investment project is making to the fulfillment of their financial goals. The limits of the net present value method result from the planning and forecasting effort required to determine the series of payments as well as from the equally complex derivation of the discount rate.
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