Net Present Value: The question most often asked is “What determines NPV?
NPV uses each of the last 4 share prices (plus all dividends ever issued) to calculate PV. NPV is determined by measuring the PV relative to the firm’s starting price, that is to their IPO (initial public offering). NPV is reported in dollars and cents. A zero value means stockholders received exactly what they were after: a 5% per quarter return. An NPV of .76 is read as, the firm produced $.76 more in value than the stockholder expected over the total time the firm has been operating. See the NPV section of the simulation manual for complete calculations and present value table. Question: “Why did my NPV rank go down while my competitor’s went up? My stock went up more than their stock did, yet they gained on me, why? Answer: The firm with the higher IPO had larger growth relative to their IPO. The concept in NPV stock ranking that is often missed is that the current quarter’s stock vlue does not replace last quarter’s stock value. It replaces the stock vlue that is 4 quarter old (la
