Hooray For Donald Trump!

[King Billy]

Three more brainless chumps talking nonsense. The US were on board every step of the way. And might well have been behind it in the first place.

I'm more interested in the figures. The money would be paid over 99 years. The government have given three different figures. The first two are obvious. £35 billion is the cost with no adjustment for inflation, so a bit pointless. £10bn is the cost in real terms, which seems the obvious one to work from.

But the £3.4bn figure is really interesting. There are two parts to it why it is much lower. One is that they expect GDP to grow in real terms over the next century. So, the amount of the payment will drop to next to nothing relative to national income. And the other part is the psychological aspect. Basically, most people don't care about payments in a hundred years time because we will all be dead. So, they discount the payment based on how much people really care about it.

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I think you've misunderstood the use of Net Present Value (NPV).
It's a calculation used in economics to assess the profitability of an investment.
There is no accommodation for subjective sentiment involved, other than the estimation of future interest rates, etc. Usually a range of NPV calculations are used to accommodate future variances in interest rates, or other inputs. The most probable NPV calculation is usually adopted.
It uses the estimated earning power of the initial cost of a project when compared to an investment in an interest-earning scenario, or alternative investment.

Suppose you were buying a house. You want to estimate the benefit of that house in x number of years, and compare it to renting a house, and investing your capital outlay in an interest-earning (or capital appreciation) account.
In today's world, with the price of property rising, and low interest rates on savings, it's a no-brainer.
But in a stagnant property market, and decent interest on savings, it could be more profitable to simply put that money to a better use.

The Net Present Value (NPV) formula calculates the difference between the present value of cash inflows and outflows over time, used to determine an investment's profitability.

Net Present Value (NPV): What It Means and Steps to Calculate It

Net present value (NPV) is a key finance tool that compares the present value of cash inflows and outflows to measure profitability.

www.investopedia.com

Microsoft Excel has a built in NPV formula.

NPV function - Microsoft Support

Calculates the net present value of an investment by using a discount rate and a series of future payments (negative values) and income (positive values).

support.microsoft.com

 

[MNW67]

I think you've misunderstood the use of Net Present Value (NPV).

They didn't use NPV. They used Social Time Preference. Which is something I had never heard of before.

 

[King Billy]

They didn't use NPV. They used Social Time Preference. Which is something I had never heard of before.

They might do, but your reference to the £3.4 Billion was the NPV figure quoted in the diagram.

But the £3.4bn figure is really interesting. There are two parts to it why it is much lower. One is that they expect GDP to grow in real terms over the next century. So, the amount of the payment will drop to next to nothing relative to national income. And the other part is the psychological aspect. Basically, most people don't care about payments in a hundred years time because we will all be dead. So, they discount the payment based on how much people really care about it.

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