IP completion day and Present value: Difference between pages

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''UK - European Union (EU) - Brexit.''
(PV).  


IP completion day was 31 December 2020.
Today’s fair value of a future cash flow, calculated by discounting the future cash flow at the appropriately risk adjusted current market [[cost of capital]].


IP completion day is an abbreviation for 'Implementation Period' completion day, the ending of the 11-month period from 31 January 2020 during which the UK continued to be subject to EU rules.


==Calculation of present value==


(This period was known in the Withdrawal Agreement between the UK and the EU as the 'transition period'.)
We can calculate present value for time lags of single or multiple periods.




On 24 December 2020 the UK and European Commission agreed the terms of a post-Brexit free trade agreement agreement that came into provisional application - subject to parliamentary ratification by the UK and the EU - from 1 January 2021.
<span style="color:#4B0082">'''Example 1: One period at 10%'''</span>


If $110m is receivable one period from now, and the appropriate periodic cost of capital (r) for this level of risk is 10%,
the Present value is:
PV = $110m x 1.10<sup>-1</sup>
= '''$100m'''.
And more generally:
PV = Future value x Discount factor (DF)
Where:
DF = (1 + r)<sup>-n</sup>
:r = cost of capital per period; ''and''
:n = number of periods
<span style="color:#4B0082">'''Example 2: One period at 6%'''</span>
If $10m is receivable one year from now, and the cost of capital (r) is 6% per year,
the Present value is:
PV = $10m x 1.06<sup>-1</sup>
= '''$9.43m'''.
<span style="color:#4B0082">'''Example 3: Two periods at 6%'''</span>
Now let's change the timing from Example 2, while leaving everything else the same as before.
If exactly the same amount of $10m is receivable, but later, namely two years from now,
and the cost of capital (r) is still 6% per year,
the Present value falls to:
PV = $10m x 1.06<sup>-2</sup>
= '''$8.90m'''.


== See also ==
* [[Article 50]]
* [[Brexit]]
* [[Brexit Day]]
* [[Brexit transition period]]
* [[Brexodus]]
* [[EU 27]]
* [[European Commission]]
* [[European Union]]
* [[European Union (Withdrawal Agreement) Act 2020]]
* [[Exit day]]
* [[Free trade agreement]]
* [[Make UK]]
* [[No Brexit]]
* [[No Deal]]
* [[Parliamentary supremacy]]
* [[Sovereignty]]
* [[United Kingdom]]
* [[Withdrawal Agreement]]


The longer the time lag before we receive our money, the less valuable the promise is today.


=== Other links ===
This is reflected in the lower Present value for the two years maturity cash flow of $8.90m, compared with $9.43m Present value for the cash flow receivable after only one year's delay.


[https://researchbriefings.parliament.uk/ResearchBriefing/Summary/CBP-7960 Brexit timeline - House of Commons Library]


[https://www.treasurers.org/hub/technical/brexit Brexit - ACT Resources]
== See also ==
* [[Adjusted present value]]
* [[CertFMM]]
* [[Compounding factor]]
* [[Discount factor]]
* [[Annuity factor]]
* [[Discounted cash flow]]
* [[Future value]]
* [[Internal rate of return]]
* [[Intrinsic value]]
* [[Net present value]]
* [[Profitability index]]
* [[Terminal value]]
* [[Time value of money]]


[[Category:Accounting,_tax_and_regulation]]
[[Category:Corporate_finance]]
[[Category:The_business_context]]
[[Category:Long_term_funding]]
[[Category:Manage_risks]]
[[Category:Trade_finance]]

Revision as of 20:16, 15 January 2016

(PV).

Today’s fair value of a future cash flow, calculated by discounting the future cash flow at the appropriately risk adjusted current market cost of capital.


Calculation of present value

We can calculate present value for time lags of single or multiple periods.


Example 1: One period at 10%

If $110m is receivable one period from now, and the appropriate periodic cost of capital (r) for this level of risk is 10%,

the Present value is:

PV = $110m x 1.10-1

= $100m.


And more generally:

PV = Future value x Discount factor (DF)

Where:

DF = (1 + r)-n

r = cost of capital per period; and
n = number of periods


Example 2: One period at 6%

If $10m is receivable one year from now, and the cost of capital (r) is 6% per year,

the Present value is:

PV = $10m x 1.06-1

= $9.43m.


Example 3: Two periods at 6%

Now let's change the timing from Example 2, while leaving everything else the same as before.

If exactly the same amount of $10m is receivable, but later, namely two years from now,

and the cost of capital (r) is still 6% per year,

the Present value falls to:

PV = $10m x 1.06-2

= $8.90m.


The longer the time lag before we receive our money, the less valuable the promise is today.

This is reflected in the lower Present value for the two years maturity cash flow of $8.90m, compared with $9.43m Present value for the cash flow receivable after only one year's delay.


See also