Beyond Present Value: Projecting Future Value with Real Interest Rate, Inflation and Uncertainty

Abstract

Net Present Value (NPV) is a cornerstone of financial decision-making, allowing us to assess the profitability of certain investment by discounting future cash flows to their present-day value. However, what if we need to project the future value of an investment, taking into account inflation and the inherent uncertainty of the future? This article explores how to move beyond NPV to estimate future value, incorporating real interest rates and modelling uncertainty.