Plastic2Oil Inc (PTOI)

[the big guy]

The concept is called Time Value of Money. A cash flow in the future is worth less now. I am discounting it backwards to present. That is what NPV calculations are based on.

The Rate of Return, Discount Rate, or Cost of Capital all refer to the same rate. It is the return that the company would get if they were to invest the money elsewhere in some other investment, and also the Cost of Capital if they borrowed money from a bank to invest in the project under review.

Let's say that an investment produces a cash flow of $100/ quarter or $400/ year.

After 1 year, given a RoR of 5%, $400 would become $420.

Reverse the argument, at that discount rate, what is a cash flow of $400 1 year from now worth? 400/(1+.05) = 380.9524 (4 decimal places should keep everyone happy). Therefore the Present Value of $400 received in 1 year at 5% is $380.95.

That is the concept behind the NPV calculations. Future cash flows are worth less and less. IRR is similar, looking at a payback period of 3 years, plus 20%. The 2-year time period is exactly for the reasons stated above.

So effectively, yes they make less and less each quarter as I have shown.

Clear?