Glossary
N
National Association of Master Appraisers (NAMA)
A non profit professional association organized in 1982, dedicated to the advancement of professionalism in real estate appraisal.National Society of Real Estate Appraisers
An organization founded in 1956 which promotes standards of professionalism in its members.Natural Vacancy Rate
The percentage of vacant properties in a given area that is the result of natural turnover and market forces.Negative Amortization
When the balance of a loan increases instead of decreases. Usually due to a borrower making a minimum payment on an Adjustable Rate Mortgage during a period when the rate fluctuates to a high enough point that the minimum payment does not cover all of the interest.Neighborhood
A subsection of a municipality that has been designated by a developer, economic forces or physical formations.Neighborhood Life-Cycle
The evolution of neighborhood use and demographics over time. Economic fluctuations, municipal zoning changes and population shifts can affect the life cycle.Net Leasable Area
The space in a development, outside of the common areas, that can be rented to tenants.Net Monthly Income
Your take-home pay after taxes. It is the amount of money that you actually receive in your paycheck.Net Present Value
Net present value or NPV is a standard method in finance of capital budgeting – the planning of long-term investments. Using the NPV method a potential investment project should be undertaken if the present value of all cash inflows minus the present value of all cash outflows (which equals the net present value) is greater than zero. A key input into this process is the interest rate or “discount rate” which is used to discount future cash flows to their present values. If the discount rate is equal to the shareholder’s required rate of return, any NPV > 0 means that the required return has been exceeded, and the shareholders will expect an additional profit that has a present value equal to the NPV. Thus if the goal of the corporation is to maximize shareholder wealth, managers should undertake all projects that have an NPV > 0, or if two projects are mutually exclusive, they should choose the one with the highest positive NPV. Alternative capital budgeting methods include the internal rate of return method and Modified Internal Rate of Return - which in most, but not all, cases results in the same decision as NPV - and real options methods, which attempt to value the managerial flexibilty that is assumed away in the NPV calculations.Example X corporation must decide whether to introduce a new product line. The new product will have startup costs, operational costs, and incoming cash flows over six years. This project will have an immediate (t=0) cash outflow of $100,000 (which might include machinery, and employee training costs). Other cash outflows for years 1-6 are expected to be $5,000 per year. Cash inflows are expected to be $30,000 per year for years 1-6. All cash flows are after-tax, and there are no cash flows expected after year 6. The required rate of return is 10%. The present value (PV) can be calculated for each year:
T=0 -$100,000 / 1.10^0 = -$100,000 PV.
T=1 ($30,000 - $5,000)/ 1.10^1 = $22,727 PV.
T=2 ($30,000 - $5,000)/ 1.10^2 = $20,661 PV.
T=3 ($30,000 - $5,000)/ 1.10^3 = $18,783 PV.
T=4 ($30,000 - $5,000)/ 1.10^4 = $17,075 PV.
T=5 ($30,000 - $5,000)/ 1.10^5 = $15,523 PV.
T=6 ($30,000 - $5,000)/ 1.10^6 = $14,112 PV.
The sum of all these present values is the net present value, which equals $8,882. Since the NPV is greater than zero, the corporation should invest in the project. More realistic problems would need to consider other factors, generally including the calculation of taxes, uneven cash flows, and salvage values.