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Expert with best answer

Ian

100% Recommendation Rate

269 Meetings

23,246 Q&A Upvotes

USD 289 / Coaching

3

NPV Calculation

Hi,

For the final NPV calculation, could you explain where the 11.25M and 1.88M figures come from? Thanks!

Total recurring profits = High season profits + Low season profits = 180 * x * 125 * ( $600 - $100) + 180 * 60% * 125 * ( $400 - $100) - $2.17M = $11.25M * x + $1.88M

Hi,

For the final NPV calculation, could you explain where the 11.25M and 1.88M figures come from? Thanks!

Total recurring profits = High season profits + Low season profits = 180 * x * 125 * ( $600 - $100) + 180 * 60% * 125 * ( $400 - $100) - $2.17M = $11.25M * x + $1.88M

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Book a coaching with Ian

100% Recommendation Rate

269 Meetings

23,246 Q&A Upvotes

USD 289 / Coaching

A few key tips:

You should use NPV when:

  • They say we should calculate out into perpituity (i.e. forever)
  • They provide you with a discount rate, cost of equity/capital, etc.
  • There is a set growth rate (into perpituity)
  • They want a calculation into the next year or two
  • As a default (i.e. always say "I could do NPV if needeD"

You should not use NPV when:

  • You have offered and they say no
  • For any calculations that are >= 3 years or < inifinity

The reason? They don't expect you to do the crazy math that NPV requires further than to the power of 2/3.

In this case, the answer is provided here: "Total recurring profits = High season profits + Low season profits = 180 * x * 125 * ( $600 - $100) + 180 * 60% * 125 * ( $400 - $100) - $2.17M "

A few key tips:

You should use NPV when:

  • They say we should calculate out into perpituity (i.e. forever)
  • They provide you with a discount rate, cost of equity/capital, etc.
  • There is a set growth rate (into perpituity)
  • They want a calculation into the next year or two
  • As a default (i.e. always say "I could do NPV if needeD"

You should not use NPV when:

  • You have offered and they say no
  • For any calculations that are >= 3 years or < inifinity

The reason? They don't expect you to do the crazy math that NPV requires further than to the power of 2/3.

In this case, the answer is provided here: "Total recurring profits = High season profits + Low season profits = 180 * x * 125 * ( $600 - $100) + 180 * 60% * 125 * ( $400 - $100) - $2.17M "

(edited)

Book a coaching with Antonello

98% Recommendation Rate

161 Meetings

5,857 Q&A Upvotes

USD 249 / Coaching

Hi,
thanks for your question. Happy to make it clearer.

If x is our high season occupancy we have that:

  • high season contribution margin (fixed costs excluded) = high season revenues - high season variable costs = 180 * x * 125 * ( $600 - $100) = $11.25M * x
  • low season contribution margin = 180 * 60% * 125 * ( $400 - $100) = $4.05M
  • yearly fixed costs = $2.17M

Therefore we have:
Total recurring profits = $11.25M * x + $4.05M - $2.17M = $11.25M * x + $1.88M

Does it make more sense?

Best,
Antonello

Hi,
thanks for your question. Happy to make it clearer.

If x is our high season occupancy we have that:

  • high season contribution margin (fixed costs excluded) = high season revenues - high season variable costs = 180 * x * 125 * ( $600 - $100) = $11.25M * x
  • low season contribution margin = 180 * 60% * 125 * ( $400 - $100) = $4.05M
  • yearly fixed costs = $2.17M

Therefore we have:
Total recurring profits = $11.25M * x + $4.05M - $2.17M = $11.25M * x + $1.88M

Does it make more sense?

Best,
Antonello

(edited)

Book a coaching with Clara

100% Recommendation Rate

58 Meetings

15,772 Q&A Upvotes

USD 229 / Coaching

Hello!

This is a great example of the use of contribution margins, that is totally key when calculating NPVs.

Cheers,

Clara

Hello!

This is a great example of the use of contribution margins, that is totally key when calculating NPVs.

Cheers,

Clara