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Stream#2 - Assignment Submission Week 12 - Net Present Value

The document discusses Net Present Value (NPV) and uses Netflix as a case study. NPV is a method used in capital budgeting to analyze if a project is profitable by discounting future cash flows. The document provides the steps to calculate NPV, including subtracting initial investment from the present value of cash flows. It then calculates the NPV of expanding Netflix's divisions over 5 years, finding it to be positive. Considerations for using NPV include uncertain cash flow projections and competition between projects.

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Sergant Pororo
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80 views10 pages

Stream#2 - Assignment Submission Week 12 - Net Present Value

The document discusses Net Present Value (NPV) and uses Netflix as a case study. NPV is a method used in capital budgeting to analyze if a project is profitable by discounting future cash flows. The document provides the steps to calculate NPV, including subtracting initial investment from the present value of cash flows. It then calculates the NPV of expanding Netflix's divisions over 5 years, finding it to be positive. Considerations for using NPV include uncertain cash flow projections and competition between projects.

Uploaded by

Sergant Pororo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Net

Present
Value

Olivia Kimiko Ileana


1134718
• What is Net present value (NPV)?
• Construction
• Case Study
• Consideration & Problem
WHAT IS NPV?

The discounted value of the cashflow Used in capital budgeting and By discounting the value of future
associated with the project investment planning to analyse cashflow, NPV reflects on the time
whether the project or investment value of money
profitable for the company
CONSTRUCTION

Ct = anticipated future cashflow


C0 = initial investment
r = discount rate
t = time period
CONSTRUCTION
CONT.

Step 1
Need to calculate the present value of future cashflows

Step 2
Deduct the present value with the initial investment

Step 3
Make decision based on the net present value rule
NPV > 0, investment or project adds value to the
company
NPV < 0, investment or project subtract value to the
company
NPV = 0, investment or project doesn't adds or subtract
value to the company
CASE STUDY
NETFLIX
NETFLIX Established in 2007 Netflix is currently the world's leading
subscription streaming entertainment services

BACKGROUND The streaming entertainment industry is exhaustively


ambitious and is subject to continuous and evolving
standards.
CALCULATING NPV

*figures are in US dollar


*assuming that that the forecasted growth rate of cash flow for the next 5 years is the average of the rate in 2 previous years

With the initial investment is $50,000,000 for the new division and the discount rate is 8%, if we were to calculate the
NPV for the next 5 years it would be as follows

Therefore, the total NPV is $27,434.28 which means that the investment for the new division adds value to the company
CONSIDERATION
AND PROBLEMS
• There's a possibility of the company to have limited funds but
with various proposal
• Need to factor other cost (i.e. opportunity cost)
• Accuracy of future cashflow projection
• Every project competes with itself at delayed time
• Uncertainty of the interest rate
REFERENCE
Farris, P., Bendle, N., Pfeifer, P. E., & Reibstein, D. J. (2016). Marketing metrics: The
manager's guide to measuring marketing performance (3rd ed.). Upper Saddle
River, NJ: Pearson.

Netflix 2019 Annual Report (2020). Retrieved 21 October 2020, from


https://s22.q4cdn.com/959853165/files/doc_financials/2019/ar/2019-10-K.pdf

NFLX Growth | finbox.com. (2020). Retrieved 21 October 2020, from


https://finbox.com/NASDAQGS:NFLX/models/dcf-growth-exit-5yr

Ross, S. (1995). Uses, Abuses, and Alternatives to the Net-Present-Value Rule.


Financial Management, 24(3), 96. doi: 10.2307/3665561

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