Does the Net Present Value as a Financial Metric Fit Investment in Green Energy Security?
Abstract
:1. Introduction
2. Literature Review
3. Materials and Methods
4. Results and Discussion
4.1. Current NPV as a Financial Metric and Interest Rates
4.2. Towards a Modified NPV as a Financial Metric
5. Conclusions
- When deciding to carry out a given investment based on the traditional NPV model, which assumes a fixed interest rate, the investor is exposed to the lack of credibility of the calculations obtained; usage of the traditional NPV model creates a possibility of rejecting investment projects that may become profitable in the case of favourable changes in the price of money in later periods. Such a situation may lead to loss of future profit or even to the reduction of future market position.
- There is a risk of choosing a wrong project, which may lead to the company’s bankruptcy.
- Frequent changes of interest rates shaped by monetary institutions make it difficult to estimate their level in the medium and long term, which significantly reduces the financial rationality of investments; investors’ financial problems may be exacerbated by the negative interaction between interest rates and the level of cash flows. Realising the method of expressing the difference between the current cash inflows and their current outflows will allow for a better assessment of the investment effectiveness in the event of the volatility of interest rates.
Author Contributions
Funding
Institutional Review Board Statement
Informed Consent Statement
Data Availability Statement
Conflicts of Interest
References
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Years | 1 | 2 | 3 | 4 | 5 | 6 | |
---|---|---|---|---|---|---|---|
Values | |||||||
NCF | 2,565,500 | 4,378,300 | 6,254,630 | 6,547,300 | 6,525,720 | 5,973,420 |
Years | 1 | 2 | 3 | 4 | 5 | 6 | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Interests Rate | ||||||||||||
interest rate (fixed) | 36% | 36% | 36% | 36% | 36% | 36% | ||||||
unfixed interest rate | 36% | 34% | 31% | 27% | 27% | 28% | 30% | 26% | 23% | 23% | 21% | |
number of days of interest rate validity | 150 | 210 | 197 | 163 | 256 | 104 | 167 | 193 | 360 | 62 | 298 |
Years | 1 | 2 | 3 | 4 | 5 | 6 | |
---|---|---|---|---|---|---|---|
PVIF | |||||||
PVIF r—fixed | 0.74 | 0.54 | 0.39 | 0.29 | 0.22 | 0.16 | |
PVIF r—variables | 0.72 | 0.55 | 0.43 | 0.33 | 0.27 | 0.22 |
Years | 1 | 2 | 3 | 4 | 5 | 6 | |
---|---|---|---|---|---|---|---|
PV | |||||||
NCF | 2,565,500 | 4,378,300 | 6,254,630 | 6,547,300 | 6,525,720 | 5,973,420 | |
PV(NCF) R—fixed | 1,898,470 | 2,364,282 | 2,439,305 | 1,898,717 | 1,435,658 | 955,747 | |
PV(NCF) R—unfixed | 1,847,160 | 2,408,065 | 2,689,491 | 2,160,609 | 1,761,944 | 1,314,152 | |
Deviation value | 51,310 | 43,783 | 250,186 | 261,892 | 326,286 | 358,405 |
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Dobrowolski, Z.; Drozdowski, G. Does the Net Present Value as a Financial Metric Fit Investment in Green Energy Security? Energies 2022, 15, 353. https://doi.org/10.3390/en15010353
Dobrowolski Z, Drozdowski G. Does the Net Present Value as a Financial Metric Fit Investment in Green Energy Security? Energies. 2022; 15(1):353. https://doi.org/10.3390/en15010353
Chicago/Turabian StyleDobrowolski, Zbysław, and Grzegorz Drozdowski. 2022. "Does the Net Present Value as a Financial Metric Fit Investment in Green Energy Security?" Energies 15, no. 1: 353. https://doi.org/10.3390/en15010353