As you know, the financial word “NPV” is an abbreviation from “Net Present Value”.
In the business activity of vegetative propagated cutting business world-wide, it is rather common to take over exiting company’s share / stocks and to acquire Plant Breeders Right (PBR), and it is essential to understand the concept of NPV in such cases.
However, I think it is not so complicated subject to understand NPV at the actual business front.
In short, NPV is a calculation output of computing future value back to the current value taking into account of the interest rate calculation.
Let’s take an example.
Example: You are going to calculate NPV of existing PBR of rose varieties for the purpose of possible acquisition.
Make quotation of royalty income of each variety from year to year.
Sum up total royalty income of all varieties from year to year.
Compute discounted value of each year’s total royalty income with tentative interest rate of 5%. (Normally you can put 5% as interest rate)
Sum up total discounted value from Y1 thorough Y3.
Of course, the computed figure of NPV would fluctuate because of different period (tentatively we are calculating until Y3) and different interest rate (tentatively we are using annual interest rate of 5%).
Thus, in short, you can deem NPV as a kind of “acceptable figure with some allowance” and not definitive.
With Best Regards,