Wednesday, April 21, 2010 5:33:53 PM
This means that cash flows would need to be roughly $90,000,000 PER YEAR! Seems pretty far fetched, but don't worry, logic isn't what's driving this stock....I mean, just look at what VKNG did thanks to momentum and BS...
and for those that are all high on BioMedReports, whatever happened to PWRM - "the next Vermillion"! I'm not bashing, I'm just saying to know your exit point in this pumped up pony.
Anyway, I'm lazy so used an online calculator to do the NPV, but it's a simple calculation and easy to build an excel spreadsheet to repeat it over and over. You can find the tool here:
http://www.investopedia.com/calculator/NetPresentValue.aspx?viewed=1
Discount Rate: 3%
Life of Project: 10 years
Initial Cost: -$380,000,000
Cash flow 1: $90,000,000 per year
Cash flow 2: $90,000,000 per year
Cash flow 3: $90,000,000 per year
Cash flow 4: $90,000,000 per year
Cash flow 5: $90,000,000 per year
Cash flow 6: $90,000,000 per year
Cash flow 7: $90,000,000 per year
Cash flow 8: $90,000,000 per year
Cash flow 9: $90,000,000 per year
Cash flow 10: $90,000,000 per year
Net Present Value: $387,718,255.31
PV of Expected Cash flows: $767,718,255.31
Interpretation:
With a discount rate of 3.00% and a span of 10 years, your projected cash flows are worth $767,718,255.31 today, which is greater than the initial $380,000,000.00 paid. The resulting positive NPV of the above project is $387,718,255.31, which indicates that pursuing the above project may be optimal.
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