Can someone explain why the fuck a business would ever proceed in a venture for a project that has a NEGATIVE NPV? Why the fuck would anyone ever do that? Is that not a surefire way to just lose money?
What the fuck
What? When has this ever been a thing?
Since you're using the term net present value, I'm assuming you're talking about a venture that has projected negative earnings. There are many reasons why this still might be a profitable undertaking. There might be valuable research & development, brand development, goodwill, intellectual property and other tangible or intangible assets that flow from the venture that won't appear in earnings. The venture might open new strategic partnerships, or open new territories, or otherwise open doors or cement relationships that yield profit elsewhere or later. And sometimes its just a question of doing more damage to the competition than you do to yourself. What hurts them, helps you ... even if it comes at a cost.
Ah ok I think I understand what you're talking about. And yeah that's what I meant. So would an example be (let's just say in example) if snapchat was failing and not as profitable for the upkeep and Facebook bought it out just so they can force Instagram, is that the idea?
Yes, that's a valid example. In your example, the user base may be more valuable than the revenue they currently generate because, in the right hands, that user base can be more effectively monetized. Also, in your example, Facebook is getting the Snapchat customer data, operating code, servers, IT know-how, etc. and the brand name too.
Ok thanks that makes perfect sense.
doesn't even need to be that...
1) NPV requires you to discount the projected profits so you aren't necessarily losing money in nominal (or maybe even real) terms
2) If you have no better options than one with a negative NPV then it could be prudent to do it so you don't lose as much to inflation.
3) You fucked up your discount rate
well no, but if its taking away from your projected profits that's still a negative NPV and not something that should be done if you're trying to maximise profits (unless of course its the facebook snapchat thing posted above)
lmao nigga you have no clue what you're talking about. A negative NPV doesn't take away from your profits...
The NPV is the returns of an investment DISCOUNTED back to present money. That discount rate could be anything and sometimes companies are only faced with negative NPV choices.
You use the market/inflation rate for the discount rate but your only choices return less than the discount rate. You would still pick the best of those options because it would give you the best return on your money (albeit not as high as market/inflation it is better than 0% nominal return).
Look, I'll map this out for you to prove the point.
Market/inflation/discount rate: 6%
Option 1: Do nothing with $100
Ct = 100*(1/1.06)^10 = $55.8
NPV = Ct - C0 = -$44.2
Option 2: Buy govt bonds with $100
Ct = 100*(1.03/1.06)^10 = $75
NPV = Ct - C0 = -$25
Positive or negative NPV doesn't necessarily mean jack shit; the only thing that matters is that the firm picks the highest.
You're a moron. You can't use conventional valuation methodologies on enterprises with negative earnings. EBITDA multiples? Anything times a negative number is negative. DCF? A negative flow discounted is still negative.
Why do you think I specifically asked OP if he was talking about negative earnings? Jesus, it's infuriating when some retard barges into a informative thread and shit it up with pseudo-garbage.
hahahaha look at the example retard... the earnings for option 2 are positive in nominal terms... the terminal value is $130 in t10 but $75 when discounted back...
It's so annoying when some community college kid who probably barely passed starts going off topic because his little brain doesn't work correctly.
So you changed the facts and suddenly you think your high school business class makes you a genius? Congrats faggot: you've learned the fine art of moving the goalposts.
Fuck off, junior. It's past your bedtime.
You can't use conventional valuation methodologies on enterprises with negative earnings.
Also, you shouldn't be using NPV to value enterprises...
hahahahah how have I changed the goal posts? Can you please tell me what in my example is wrong? Or are you going to keep name calling?
I never said you should, retard. I clearly understand what OP was asking, even though his use of terminology was not entirely proper. You see, I'm used to dealing with people who don't know as much about finance as me. When you're an expect in the field, you make yourself valuable by helping those who don't as much as you.
You'll never know this feeling.
I won't kiddo because I've only really dealt with buy-side, sell-side, and institutional investors.
I'm sure you're a real successful financial planner ;)
Feel free to critique my example of negative NPV or you can keep throwing a hissy fit with no retort.
Pretty obvious you're not even an intern, let alone an analyst. You're clearly not even bright enough to carry the principal's briefcase. Putting you in front of a client would be financial malpractice.
Definitely you're still in school. And probably high school. Maybe you don't ride the shortbus, but I'd say it's 50-50 whether college is in your future.
Honestly just grow up and write a reply on what is wrong with my negative NPV example . You keep insulting me and refuse to respond because you know you are wrong...
Also, it's pretty clear I hit the nail on the head with the financial planner remark hahahha I'm sorry but you've just been so rude from the start and all I want is for you to show me where you think I'm wrong instead of insulting me
/retarded and wrong general/
tfw you tried tried to roleplay as a Wolf of Wall Street but got found out as a high school kid
Look, it's clear you don't know what you're talking about and that's why you won't actually critique the argument.
I've in no way pretended to be some Wolf of Wall Street and if you knew anything about him you'd know he's not a banker but a salesman. You may work a shitty job and want to sling insults over the internet to make yourself feel better but I don't want to.
Give me a proper reply, or continue your tirade and I'll happily leave knowing you couldn't prove me wrong.
Are you seriously begging for attention? "Please sir, give me a proper reply."
How about "no."
I've already debunked everything of substance that you posted, and exposed you as a fraud. Now you're just being a whiny little bitch, and my patience is exhausted.
Get some self respect, kid.
You could just pay out the money as dividends. You don't have to sit on the 100$ just because you can't find an investment.
Great point. However, there could be a multitude of reasons the firm may not wish to do this. For example, the company may want that money on hand for liquidity issues, they may believe dividend taxes could be too high to justify, they may have high repatriation taxes if it is offshore, etc...
Also, I'd say the bonds are definitely an investment.
A practical example of this would be Apple btw