Analyzing Investments | Time Value of Money, WACC, Net Present Value, Internal Rate of Return

Today we have a great lesson on analyzing different investments and the discounted cashflow methodology. Have you ever been put in a situation where you just didn’t know which return could be better? What your money might be worth when you're retirement age? Or how to invest in the smartest way possible? Today we talk about what the Time Value of Money is, WACC, we go through Net Present Value and how to calculate the Internal Rate of Return.

The key principles in this video named simply are:
Number 1 - A dollar today is worth more than a dollar a year from now. We call that time value of money.
Number 2 - It costs you to use your investment dollars. We call that the weighted average cost of capital. Figure out what that is and make sure that your investments are going to be greater than that weighted average cost of capital.
Number 3 - Net present value, if that's positive that means your return is greater than the hurdle rate that you're using. If it's negative it's less than that. Again we want to make sure that our returns are greater than the expected rate our investment community expects from us.
Number 4 - Internal rate of return gives you the actual return you're getting on this investment.

These are all things critical to know in the workplace because they’re used and calculated often. However, it can also become useful in your personal lives. Thanks for listening!


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