Mini Case: Calculate your own NPV

Hello!

I would indeed go with average salary during your working years.

To make it more accurate, I would divide you work life into clusters of 10 years and calculate an average for that spam -given that your salary in your 20s has (hopefully) nothing to do with your salary in your 50s-.

After this little improvement, I would go with your method.

Hope it helps!

Cheers,

Clara

Hi there,

I reported my comments below:

• you can use a DCF model as for several years it approximates well the real flow of money (which would end somewhere between age 80 and 110).
• the discount rate represents the rate of return (therefore correlated with the expected risk) related to the cash flow of the “project” (in this case, your career). You may use 5% unless you are very optimistic on your future cash flow (in which case the rate should be higher)
• you should take net income, as that would be the real cash flow generated
• you can either add the pension or consider net income + social security contribution for the years when you work, for simplicity, assuming your social security contributions would be equal to the future pension

Best,

Francesco

Hi!

• Perpetuity calculation with avg salary and 5% sounds reasonable.
• Take a net income for sure (we are interested in cash, so for individual it would be a net income).
• Pensions I would not include, because those are your savings, aren't they? So, basically you have them already inside of your avg net income

Best,
Daniel

Hi,

the NPF formula requires cash flow, therefore I would deduct all essential costs from your net salary and then you have kind of a cash flow.

I would not use perpetuity, because it is your own NPV and a life is limited. Thus, I would have a look at the life expectancy of people and consider this as the time frame for your calculations.

Just two ideas how to optimize this.

Best