Net present value

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How can you judge if something is worth doing when the return of investment happens in the future?

The net present value is essentially a way of discounting future earnings with a given rate. Calculating an appropriate rate is where the "art" happens. You can include risks, uncertainties, interest rates, etc.

You can also see it the other way around, if you use money today and assume a given interest rate, how much money would that represent in the future?

If your business plan does not yield a positive net present value, then it may not be worth pursuing: the investment is just too large.

One of the challenges in scaleups is that there's no trivial ownership of the evaluation of what actions in the past are yielding returns in the present, and there's a tendency to fall into the sunken cost fallacy.


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Aquiles Carattino
Aquiles Carattino
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