Nåverdit

Nåverdit is a term used in Norwegian finance to denote the present value of future cash flows, discounted to today at a chosen discount rate. It expresses the idea that money available now is worth more than the same amount in the future because of the potential to earn interest and compensate for risk. In Norwegian-language materials, the standard term is nåverdi; nåverdit can appear as a definite form in some grammatical contexts.

The present value of a single future cash flow C received after t years is nåverdit = C / (1 + r)^t, where r is the annual discount rate. For a stream of cash flows C_t received at the end of each year t = 1, 2, ..., n, the nåverdit is the sum over all t: nåverdit = sum_t C_t / (1 + r)^t. The net present value (NPV) of an investment with initial outlay I0 is NPV = -I0 + sum_t C_t / (1 + r)^t. A positive NPV indicates an expected value above the cost of capital, all else equal.

Applications include capital budgeting, project evaluation, and asset pricing. In bond valuation, the price equals the sum of discounted coupon payments plus the discounted principal. The concept relies on assumptions about the predictability of cash flows and a stable discount rate, and it is sensitive to changes in r and to risk adjustments embedded in the rate. Limitations include estimation risk, inflexibility for uncertain or changing cash flows, and the challenge of choosing an appropriate discount rate for heterogeneous risk profiles.

See also: time value of money, net present value, discount rate, bond pricing.