software

I thnk part of my problem is that I'm not sure what type of financial
valuation I'm trying to find, but here is the basic scope:

1. My customer wants to buyout my contract with them early.
2. The contract is 36 months, with 7 months left (29 payments have been made)
3. Payments are made mothly, but vary in amount. The amount due each month
might be roughly estimated through historical data (averaging and weighted
averages), but the final amount isn't available for calculation until the
actual month end and could vary by /- 10% of any estimate.
4. The value I'm trying to calculate would be an amount that could be paid
today, based on the historical data available, discounted for the value of
having the payment today instead of 7 months from now.

I looked at PV and NPV functions. NPV seems to be the most appropriate, but
I don't understand how NPV takes into account the number of months left in
the term. I also don't know what discount rate/interest rate to use.

This is a very straighforward calculation that someone in the finance world
probably does a few times each day or week.

Thanks in advance!

Rich

Hi Rich

I don't think the length of the contract comes into it.
Basically, you are asking what is the value today, for receiving all 7
payments left instead of waiting to receive them at the end of each of
the remaining 7 months.
Let's assume that the average value per month is 2000.
Let's assume interest rate is 6% or 6%/12 to make it monthly
Then
=PV(6%/12,7,2000)
returns a value of -13724.15.
So it would be worth investing 13724.15 today, to gain 2000 per month
for 7 months at an interest rate of 6% per anum, so that is the value to
you for receiving the payments today instead of waiting.
Substitute whatever monthly figure you want, and interest rate that you
think is appropriate.

--
Regards

Roger Govierquot;rpalareaquot; gt; wrote in message
...
gt;I thnk part of my problem is that I'm not sure what type of financial
gt; valuation I'm trying to find, but here is the basic scope:
gt;
gt; 1. My customer wants to buyout my contract with them early.
gt; 2. The contract is 36 months, with 7 months left (29 payments have
gt; been made)
gt; 3. Payments are made mothly, but vary in amount. The amount due each
gt; month
gt; might be roughly estimated through historical data (averaging and
gt; weighted
gt; averages), but the final amount isn't available for calculation until
gt; the
gt; actual month end and could vary by /- 10% of any estimate.
gt; 4. The value I'm trying to calculate would be an amount that could be
gt; paid
gt; today, based on the historical data available, discounted for the
gt; value of
gt; having the payment today instead of 7 months from now.
gt;
gt; I looked at PV and NPV functions. NPV seems to be the most
gt; appropriate, but
gt; I don't understand how NPV takes into account the number of months
gt; left in
gt; the term. I also don't know what discount rate/interest rate to use.
gt;
gt; This is a very straighforward calculation that someone in the finance
gt; world
gt; probably does a few times each day or week.
gt;
gt; Thanks in advance!
gt;
gt; Rich
Roger - worked like a charm. Thanks so much.
Rich

quot;Roger Govierquot; wrote:

gt; Hi Rich
gt;
gt; I don't think the length of the contract comes into it.
gt; Basically, you are asking what is the value today, for receiving all 7
gt; payments left instead of waiting to receive them at the end of each of
gt; the remaining 7 months.
gt; Let's assume that the average value per month is 2000.
gt; Let's assume interest rate is 6% or 6%/12 to make it monthly
gt; Then
gt; =PV(6%/12,7,2000)
gt; returns a value of -13724.15.
gt; So it would be worth investing 13724.15 today, to gain 2000 per month
gt; for 7 months at an interest rate of 6% per anum, so that is the value to
gt; you for receiving the payments today instead of waiting.
gt; Substitute whatever monthly figure you want, and interest rate that you
gt; think is appropriate.
gt;
gt; --
gt; Regards
gt;
gt; Roger Govier
gt;
gt;
gt; quot;rpalareaquot; gt; wrote in message
gt; ...
gt; gt;I thnk part of my problem is that I'm not sure what type of financial
gt; gt; valuation I'm trying to find, but here is the basic scope:
gt; gt;
gt; gt; 1. My customer wants to buyout my contract with them early.
gt; gt; 2. The contract is 36 months, with 7 months left (29 payments have
gt; gt; been made)
gt; gt; 3. Payments are made mothly, but vary in amount. The amount due each
gt; gt; month
gt; gt; might be roughly estimated through historical data (averaging and
gt; gt; weighted
gt; gt; averages), but the final amount isn't available for calculation until
gt; gt; the
gt; gt; actual month end and could vary by /- 10% of any estimate.
gt; gt; 4. The value I'm trying to calculate would be an amount that could be
gt; gt; paid
gt; gt; today, based on the historical data available, discounted for the
gt; gt; value of
gt; gt; having the payment today instead of 7 months from now.
gt; gt;
gt; gt; I looked at PV and NPV functions. NPV seems to be the most
gt; gt; appropriate, but
gt; gt; I don't understand how NPV takes into account the number of months
gt; gt; left in
gt; gt; the term. I also don't know what discount rate/interest rate to use.
gt; gt;
gt; gt; This is a very straighforward calculation that someone in the finance
gt; gt; world
gt; gt; probably does a few times each day or week.
gt; gt;
gt; gt; Thanks in advance!
gt; gt;
gt; gt; Rich
gt;
gt;
gt;