Okay, so now we're ready to get back to, now we knew everything we need to know

to jump back into the NPV project evaluation method.

So here's a reminder of the formula.

The net present value of a project for one player is simply

the algebraic sum of every stinkin' cash flow for

this project for that player, which has been before adding up,

which has been discounted back to T equals zero,

or if you want to think about it in other way,

discounted back to T equals zero using what?

Using the opportunity cost of capital.

And what cash flows are we talking about again?

Cash flows that have been risk adjusted for project specific risk or

what we call sometimes, what I call sometimes stupid manager risk.

Okay, so now we've got two important things about the NPV formula itself.

One is that the net present value of opportunity cost investments,

that diversified portfolio or observable stuff that we could have

invested in alternately that gave us our opportunity cost of capital.

The NPV from investing in more of that diversified portfolio

of stuff fin our investment milieu, it's always going to equal 0.

And what I have in gray here is an explanation and proof,

explanation for and proof of that.

The information in gray, I'm not going to cover.

You're welcome to look at it.

It's in my textbook if you're interested and

you can certainly check it out, but

we're just going to accept this on face value here.

Second thing that we're going to accept is that if we

find investments that are in our investment milieu,

again, for a firm like CAG, if we find projects,

remember project, the synonym for investment.

If we find development projects for multifamily rental

buildings that we can put together that we feel will have an NPV greater than zero

after we estimated all the cash quotes for the project, we should go ahead.

We should go ahead because that's going to do better for

us than putting the money we could invest in this

project in our opportunity cost of capital investments.

All right, so that gives us a great rule for applying the NPV formula,

which is, invest in a potential project if the NPV is greater than zero.

Don't invest if the NPV is less than zero.