03 May Responses
Reading about Net Present Value (NPV) for this module, you probably thought of it as a technique used only by corporations. But the technique may also apply to your own purchases.
You may have heard a salesperson tell you, “This product pays for itself!” While this is probably rare for most products, sometimes there are future savings from certain products that will offset some of the costs. For example, if you buy a newer, more reliable, and more fuel-efficient car, it may save you on repair bills and gas prices compared with your old car. If you are a coffee connoisseur, buying a $100 espresso machine might save you money compared with constantly buying $4 drinks at your local Starbucks.
Think of a purchase you are planning to make or have recently made. How much did it cost? How much per year do you think you will save from this purchase, and for how many years will you get these savings? Estimate the present value of the savings, and subtract the cost of the product. Note that it is rare that any purchase will “pay for itself” (e.g., have a positive NPV). But are the savings enough that the product becomes a lot “cheaper” and more worthwhile for you to buy?
Student 1-Terissa
Net present value is described as the present value of an investment and the difference of that value in a future investments profitability (Investopedia, n.d.). For example, something to invest in which would gain profits at a later period of time.
For this discussion, I chose the monthly subscription to Bark Box. Bark Box is delivered on a monthly basis to my residence, which includes 3 sorts of treats and 2 toys at a cost of $20 per month. I think that it is an awesome subscription to invest in because, as all pet owners know, food, treats, and toys can be pricey. At the end of the year, I will have only spent $240 on this subscription compared to the $900 it would cost if I purchased all items separately. Aside from the Bark Box, pet owners also have to buy food; therefore, with 2 pups I buy large bag every other month at $60 per bag, that’s $360 per year. $240 plus $360 ($600) is still a great investment versus the $900 plus $360 ($1260) per year, saving me $660 per year.
Although the toys don’t last very long, we haven’t had to buy treats since we subscribed to this box and it’s like Christmas every month for them. Happy puppies make me happy.
This example was probably far fetched (haha see what I did there?), but along the lines of investments, the subscription pays for itself.
Thank you,
Terissa
“Net Present Value – NPV.” (n.d.), Investodpedia. https://www.investopedia.com/terms/n/npv.asp
Student 2-Kathryn
My husband just recently subscribed us to Amazon Prime. At first I thought this was very expensive just for some free shipping. After looking into all the “perks” you get with Amazon Prime, I instantly changed my mind. After doing this exercise I am very glad we subscribed. Not only did we recoup the yearly subscription in the first several months but will continue to save from being able to discontinue other services no longer necessary.
Amazon Prime provides free unlimited cloud storage for photographs which I have a lot! What can I say I love my grandkids and fur babies, I take a lot of pictures. I had been buying extra cloud storage from Apple every month just for my pictures. No more. Amazon Prime has free video streaming of movies, TV, HBO, and documentaries. We were able to discontinue our HBO from our cable service as well as Netflix. Amazon Prime has free music streaming allowing us to discontinue our Apple Music subscription as well.
Amazon Prime cost $99.00 per year
Monthly Yearly
Apple Music $9.99 $119.88
Netflix $7.99 $95.88
Premier Cable channels $20.00 $240.00
iCloud storage $0.99 $11.88
Totals $38.97 $467.64
As you can see from the table above the cost of the yearly subscription paid for itself in just three months. The total savings would be $467.64 – $99.00 = $368.64. I would say this is a good investment of capital, with a positive NPV.
Amazon.com. (n.d.). Amazon Prime music. Retrieved from https://www.amazon.com/gp/dmusic/promotions/PrimeMusic? ref=hawkfire_prime_detail_page_benefit_desc
Amazon.com. (n.d.). Amazon Prime photo. Retrieved from https://www.amazon.com/s/ref=nb_sb_ss_c_1_12?url=search-alias%3Daps&field-keywords=amazon+photos+-+cloud+drive+storage+backup+and+photo+sharing&sprefix=amazon+photo%2Caps%2C319&crid=2JWTI69LMS6ZH
Amazon.com. (n.d.). Amazon Prime video. Retrieved from https://www.amazon.com/gp/video/storefront?node=2676882011&ref=pmp_desk_pv&ie=UTF8&ms3_c=117bdeab1eeb89121834972a5f0b466e
Student 3- Sena
Good Morning Class! I hope everyone had a wonderful holiday weekend!
We unfortunately had to bite the bullet last month because our furnace bit the bullet. Being that the furnace was at least 30 years old and the A/C unit was at least 20 years old, we decided to replace both of them for more energy efficient versions. We felt like no matter what A/C and furnace we went with was going to cost us less in the long run, and help to sell the house eventually. We ended up spending about $3,600 to replace both units and have them installed. Just the sheer fact that the furnace is not running all the time with this one degree weather we are having here today, is saving us money. We calculated that these new units would save us approximately $420 per year (for electric and gas) and we would get a return on the saving in approximately 9 years at $3,780.00 (YourMoneyPage, 2017). This gives us a NPV of $180.00 (Investopedia, 2017). Keep in mind that this does not include the tax credit we would get for purchasing an energy star appliance and will give us a bargaining edge for resale. Whether we wanted to or not, we had to purchase a new furnace; luckily, it will save us some money in the long run.
YourMoneyPage. (2017) High Efficiency Furnace Payback Calculator. Retrieved from https://www.yourmoneypage.com/energy/furnace1a.php
Investopedia. (2017) Net Present Value – NPV. Retrieved from https://www.investopedia.com/terms/n/npv.asp
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