> Could any of you financially astute LBO'ers help me
> out with this one.
Probably not but I'll give it a shot.
> . . . The way it is used by this corporation is the
following:
>
> a $20 million capital asset with a life of 40 years,
calculating the Net
Present Value over 10 years with a discount rate of 8%. The
result, they
say is approximately ($11,730,000). There are two blips: in the
second year
a smaller capital investment of $500,000 and a third year
one-time payment
of $100,000. >
It sounds like the $11 mill refers to the net present value of in-go and out-go over the first ten years. To calculate this you need to know at least three things: the stream of income from the asset, the expenses associated with earning this income, and the depreciation of the asset. You have not supplied enough information to do the problem. You speak of two "blips", but you do not state the counter-factual to the blips -- the 'normal' in-go, out-go, and depreciation.
If you take the $11.73 mill, the ten year period, the discount rate, and the "blips" as given, then by some numerical method you might be able to solve for the net for each of the ten years. This doesn't seem to lend itself to solution by a calculator -- more likely a program like Mathcad or some financial textbook software.
If you know the net for each of the ten years (income less expenses less depreciation), abstracting from taxes, then you must do is divide the net by the proper discount factor for each year, then add them up. The discount factor for a given year is (1.08) raised to the power of the year in question (where the first year is 'year one') minus one. Thus if the net for year 3 is $100,000, you need to divide it by 1.08^2 (e.g., year 3 minus 1 means you square 1.08).
> First, I've tried all sorts of calculations and just do not get
the $11.7
mil. I've tried initially depreciating the capital (to approx.
$15 mil) and
even tried compounding that depreciation. You can see how
desperate I am.
>
If you're trying to replicate the company's number, you need to know how they depreciate, along with their numbers for in-go and out-go.
mbs