Final answer:
To calculate Net Present Value, different present discounted value calculations must be done for future amounts and summed up. After finding the total, dividing by the number of shares may be required if dealing with equities. Choosing the right discount rate is crucial as it impacts the final NPV.
Step-by-step explanation:
When calculating the Net Present Value (NPV), you need to assess the value of future cash flows in today's terms. This involves discounting future amounts back to their present value using a specific interest rate. For example, let's consider future profits that require present value calculations. You must perform a different PDV calculation for each time a benefit is received. Add up all these present values to attain the NPV.
Once you have the total PDV of all future profits, you might need to find the impact per share if dealing with a company. If you have 200 shares, and the PDV of total profits is 51.3 million, divide 51.3 million by 200 to get the value per share. In this case, it would be 0.2565 million, or roughly $256,500 per share.
It's important to note that in reality, expected profits are estimates, not exact figures. Selecting the appropriate interest rate for discounting is also a critical step, often based on the cost of capital or the expected rate of return on alternative investments.