00:02
Once again, welcome to new problem.
00:05
When you think about net operating income, and this, for the most part, you'll find it in businesses that are dealing with real estate.
00:21
So real estate businesses where we're obviously going to have exchange of property.
00:30
And by exchange of property we mean, you know, buying and selling different kinds of property.
00:38
So when you think about this type of income, net operating income, this is the properties, properties gross operating income, and then, and then of course you subtract the operating expenses.
01:06
So we kind of have a relationship between income and expenses.
01:13
The calculations for this type of entity happen at an annual level.
01:22
And the purpose obviously is the goal of having a net operating income is to aid in the estimation of revenue potential for different kinds of investments.
01:48
So when you want to make an investment and then you're thinking about the cash flows and the revenue potential for that investment, then of course you want to think about the net operating income.
02:03
So you're going to look at the net operating income and say this is the deal.
02:12
So assume expected receipt of net operating income of net operating income.
02:31
And in this case we have we have a property that we're dealing with and, you know, it has different years of operation.
02:41
So we have year one, we have year two, we have year three, we have year four, so we have different years that you're seeing right here.
02:56
So we have $20 ,000, year one, we have $22 ,000, year two.
03:02
We have not 20 we have 30 ,000 dollars, 30 ,000 dollars and then year four we have 31 ,000 and then year five we have 40 ,000 dollars.
03:27
So we want to determine the we want to determine the total present value, we want to determine the total present value of the property given five -year holding period.
03:58
So we have a five -year holding period and we want to figure out what the total present value is.
04:10
In terms of understanding the concept of present value, we do see this as, so we're just going to talk about it a little bit.
04:25
We see the present value.
04:27
We do have a present value understanding is the present, present discounted, discounted.
04:41
Value.
04:44
So it's the expected value of an income stream.
04:53
So we have streams of income and we're thinking about expected values of these streams of income.
05:04
And so the first thing we're going to do is we're going to come up with the table, you know, looking at this table, so we have to extend the table.
05:12
And introduce extra columns and these columns will show the present value of income.
05:25
So, you know, we have the two columns.
05:29
The first one is present value factor, you know, at 10%, present value income factor.
05:37
And then we also have the present value.
05:40
So these are computations.
05:44
And don't forget if you are looking at computational formulas for present value, we have pv equals to c over 1 plus r, raise to n.
05:57
And c happens to be the cash flows...