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How To Analyze An Investment Opportunity

New Jersey business valuations accountant discusses the best way to determine if an investment opportunity is worth it. The framework we use to analyze an investment is called net present value. This framework makes you think about the narrative, is it a profitable business, what's the margin, etc. Here's a simple example: Let's say you want to buy a business for 200 million dollars. You forecasted 500 million dollars of cash flow for six years, and after six years, the whole business goes away. The first thing you need to think about is what rate you want on this business, or what your discount rate is. For this, let's use 6%. In year zero, you would spend 200 million dollars on the business. And years 1-6, the net cash flow from that business would be about 500 million dollars. To decide whether or not to invest, you would simply do the net present value calculation on years 1-6 at 6%. When you do that calculation, you're going to come up to about 460 million dollars. So, if you can see that you're going to have a positive net present value, you would probably want to make that investment, from a purely financial standpoint. If you have any questions, feel free to contact us or visit our website for more information: http://www.rabcpafirm.com/practices/b... 1812 Front Street Scotch Plains, NJ 07076 (908) 322-7719 http://www.rabcpafirm.com/?utm_source...