Re: Discounting a negative value?
From: Norman Harker (njharker_at_optusnet.com.au)
Date: 04/06/04
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Date: Tue, 6 Apr 2004 23:40:44 +1000
Hi Rick!
It's a straightforward PV thing.
Assume the calculation is right and I invest $40,816.33 today for two
years earning 5% per annum.
In two years I will have
=40816.33*(1+.05)^2
Returns 45000
And that's how much I need.
In today's terms the future obligation to pay out 45000 must be less
than the future obligation because I am able to invest money to build
up the amount I need.
-- Regards Norman Harker MVP (Excel) Sydney, Australia njharker@optusnet.com.au Excel and Word Function Lists (Classifications, Syntax and Arguments) available free to good homes. "Rick" <RickyB@jps.net> wrote in message news:N7ycc.17162$Dv2.28@newsread2.news.pas.earthlink.net... > JM wrote: > >> "Rick" <RickyB@jps.net> wrote in message >> news:N%ucc.17023$Dv2.7928@newsread2.news.pas.earthlink.net... >> >>>What would be the correct way to discount a negative value...(an >>>expense): >>> >>>Like (where D13 is a negative value expensed in year 2 of an >>>analysis and >> >> Cost_of_Capital is, well >> >>>the cost of capital): >>> >>>=ABS(D13)/1+ Cost_of_Capital ^ 2 >>> >>>or: >>> >>>=D13/1+ Cost_of_Capital ^ 2 >>> >>>The latter returns a negative value greater than the undiscounted >>>one, >> >> which is not correct?? For >> >>>example if D13 = $45,000.00 then the latter formula = $40,816.33. >>>The >> >> first formula returns >> >>>$45,000.00. Both of these formulas use a 5% Cost_of_Capital. >> >> >> >> It's not clear what you are trying to do but I suspect the problem >> is >> related to missing brackets. >> >> ie. the divisor needs to be "(1+5%^2)" >> >> Otherwise, please explain what is meant by "discount a negative >> value". Is >> this >> 1. Ignore (not count) negative values. >> 2. Calculate the rebate or reduction in value >> 3. Something else. >> >> >> > Thanks, JM and Norman... > > ...what I am trying to calculate is how much will the expense (2 > years in the future) cost me in today's money. A present value > calculation, so to speak. > > Now that I add the parentheses (or brackets) I get $44,887.78 is > this the correct answer? I can see that the value of the expense > will be less than today's money, but how much would be needed to pay > this expense? > > or...Am I just not getting this accounting stuff? > > Rick
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